More annual reports from Cadiz Inc.:
2023 ReportPeers and competitors of Cadiz Inc.:
York Water Co Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 29, 2000 (period: December 31, 1999)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from..to... Commission File Number 0-12114 ------------------------ CADIZ INC. (Exact name of registrant specified in its charter) DELAWARE 77-0313235(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)100 Wilshire Boulevard, Suite 1600 Santa Monica, CA 90401-1111(Address of principal executive offices) (Zip Code) (310) 899-4700 (Registrant's telephone number, including area code) ----------------------------- Securities Registered Pursuant to Section 12(b) of the Act: None ---------------------------- Title of Each Class Name of Each Exchange on Which Registered ------------------- ---------------------------------------- None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock (Title of Class)Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes /__X__/ No /__/Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K (Section 220.405 of this chapter) is not containedherein, and will not be contained to the best of registrant's knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment of this Form 10-K. /_/As of March 29, 2000, the registrant had 35,302,911 shares of Common Stockoutstanding. The aggregate market value of the Common Stock held bynonaffiliates as of March 29, 2000 was approximately $300,345,000 based onthe closing price on this date.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. DOCUMENTS INCORPORATED BY REFERENCECertain portions of Registrant's proxy statement for the annual meeting tobe held on May 15, 2000, to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A not later than 120 days after theclose of the Registrant's fiscal year, are incorporated by reference underPart II of this Form 10-K. PART IITEM 1. BUSINESS Water is one of the world's most precious resources.Considerable population increases are placing great demands on watersupplies and related infrastructure both in California and worldwide.Compounding the issue in California, population centers are notgenerally located where significant precipitation occurs. Managementtherefore believes that a competitive advantage exists for thosecompanies that possess or can provide a high quality, reliable andaffordable water supply especially within California's multi-billion dollar agricultural industry, one of the largest users of water in the state. Accordingly, water resource management and agriculturaloperations, two inter-dependent efforts, form the long-term businessstrategy of Cadiz Inc. (the "Company"). The Company has created anintegrated and complementary portfolio of assets encompassinglandholdings with high-quality groundwater resources and/or storagepotential, prime agricultural properties located throughout centraland southern California with secure and reliable water rights, othercontractual water rights, and may include technologies for waterconservation, reclamation, production and conveyance. Managementbelieves that the Company's access to water will provide itwith a competitive edge both as a major agricultural concern and as asupplier of water, leading to continued appreciation in the value ofthe Company's portfolio. The Company's wholly-owned subsidiary, Sun World International,Inc. and its subsidiaries (collectively "Sun World"), is one of thelargest developers, growers, packers and marketers of proprietaryfruits and vegetables in California, specializing in high-valuepermanent crops. Sun World's highly regarded brand name, productinnovation from its fruit breeding programs, international licensingprograms and global marketing reach have provided Sun World with astrong position in the ongoing consolidation in the retail groceryindustry. Sun World also adds valuable water rights to the Company'sexisting water resource management operations. Currently, Sun Worldowns more than 19,200 acres of land primarily located in two majorgrowing areas of California: the San Joaquin Valley and the CoachellaValley. In addition to its Sun World properties, the Company holdsapproximately 37,700 acres of land in eastern San Bernardino Countythat are underlain by excellent groundwater resources withdemonstrated potential for various applications, including waterstorage and supply programs, and agricultural, municipal, recreationaland industrial development. All of the Company's properties arelocated in close proximity to California's major aqueduct systems.The Company expects to utilize its resources to participate in a broadvariety of water storage and supply, transfer, exchange, and conservation programs with public agencies and other parties. In December 1997, the Company entered into an interim Agreementwith the Metropolitan Water District of Southern California("Metropolitan") to develop principles and terms for a long-termagreement at its Cadiz, California property. In July 1998, theCompany and Metropolitan approved the principles and terms foragreement for the Cadiz Groundwater Storage and Dry-Year SupplySource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Program (the "Program"), authorized preparation of a final agreementbased on these principles and terms and initiated the environmentalreview process for the Program. The Program will enhance SouthernCalifornia water supply reliability in two ways, providing a new dry-year water supply and much-needed storage. During wet years orperiods of excess supply, Metropolitan will store surplus ColoradoRiver water in the aquifer system underlying the Company's Cadizproperty. During dry years, the previously imported water, togetherwith indigenous groundwater, will be extracted and delivered, via aconveyance pipeline, to Metropolitan's service area during the 50-yearterm of the agreement. In 1999, the Company and Metropolitan completed several significant milestones in the environmental review process. This process must be completed before construction and operation of the Program can commence. A draft Environmental Impact Report/Environmental Impact Statement ("EIR/EIS") was issued in November 1999 for public review and comment. The public comment period closed in March 2000. The draft EIR/EIS incorporated a wide array of technical, environmental and engineering analyses and studies completed during 1999, including the operation of a pilot spreading basin project that serves as a prototype for the full-scale program and optimization studies for the design of the capital facilites. Also, see "Narrative Description of Business - Water Resources Development - Cadiz Groundwater Storage and Dry-Year Supply Program." Based upon the Company's expertise in water and agriculturalresources, in June 1999, Sun World was appointed by KingdomAgricultural Development Company (KADCO), a company currently 100%controlled by His Royal Highness Prince Alwaleed Bin Talal BinAbdulaziz Alsaud, to develop and manage up to 100,000 acres ofagricultural land in southern Egypt, called the Tushka Project. TheTushka Project is the cornerstone in the Egyptian government's multi-billion dollar South Valley Project, an immense infrastructure plandesigned to irrigate more than 500,000 acres of desert land to fosterurban and agricultural development. The South Valley Project involvesthe construction of one of the world's largest pumping stations and a43-mile (70 km) canal that diverts water from Egypt's Lake Nasser, thereservoir formed on the Nile River by the Aswan High Dam, to fourseparate parcels of land - the first being the Tushka site.Construction is well underway with approximately 20 miles of canalcompleted and the pumping station expected to be operational in 2001.The initial commercial plantings for the Tushka Project will followcompletion of the canal construction which is anticipated to occur in2002. In addition to Sun World's role in Tushka, Cadiz and KADCO alsoagreed to form an entity to pursue the development and management ofwater resources in the region. The Company continually seeks to develop and manage its water andagricultural resources for their highest and best uses. The Companyalso continues to evaluate acquisition opportunities, which arecomplementary to its current portfolio of water and agriculturalresources.(a) General Development of Business -------------------------------- As part of its current business plan, the Company's landacquisition, development activities and agricultural operations areconducted for the purpose of enhancing the long-term appreciation ofits properties. See "Narrative Description of Business," below. As the most populous state in the nation, California's populationis projected to swell to nearly 50 million people by the year 2020.This increasing population is placing great demands on California'sinfrastructure, particularly its limited water resources. Accordingto the California Department of Water Resources, shortfalls ofapproximately 7 million acre-feet are forecasted in a dry year by theSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. year 2020. Management therefore believes that, with both theincreasing scarcity of water supplies in California and the increasingdemand for water, the Company's access to water will provide it with acompetitive advantage both as a major agricultural concern and as asupplier of water which will lead to continued appreciation in thevalue of the Company's portfolio. Sun World, which was acquired by the Company in September 1996,owns approximately 19,200 acres of prime agricultural land primarilyin the San Joaquin and Coachella Valleys, giving the Company totallandholdings of approximately 56,900 acres. See Item 2, "Properties."(b) Financial Information About Industry Segments --------------------------------------------- During the year ended December 31, 1999, the Company operated itsagricultural resources segment and continues to develop its waterresource segment of the business. See Consolidated FinancialStatements. Also, see Item 7, "Management's Discussion and Analysis."(c) Narrative Description of Business --------------------------------- Pursuant to its business strategy, the Company continually seeksto develop and manage its portfolio of water and agriculturalresources for their highest and best uses. The development andmanagement activities of the Company are currently focused onagricultural operations (primarily through Sun World) and waterresource development. The Company also continues to evaluateacquisition opportunities, which are complementary to its currentportfolio of water and agricultural resources.WATER RESOURCE DEVELOPMENT The Company's portfolio of water resources, located in closeproximity to the Colorado River or the major aqueduct systems ofcentral and southern California, such as the State Water Project andthe Colorado River Aqueduct, provides the Company with the opportunityto participate in a variety of water storage and supply programs,exchanges and transfers. CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. TheCompany's 27,400 acres in the Cadiz and Fenner Valleys of easternCalifornia (the "Cadiz/Fenner Property") are underlain by asubstantial high-quality groundwater basin. Rain and snowfall withina catchment area of nearly 1,300 square miles recharge the basin. SeeItem 2, "Properties - The Cadiz/Fenner Property." In July 1998, the Company and Metropolitan entered into thePrinciples for an Agreement (the "Principles") for the CadizGroundwater Storage and Dry-Year Supply Program, one of the largestpublic/private partnerships in California's water history. ThePrinciples provide that Metropolitan will, during wet years or periodsof excess supply, store surplus water from its Colorado River Aqueductin the groundwater basin underlying the Company's property. Duringdry-years or times of reduced allocations from the Colorado River, thestored water will be withdrawn and returned via conveyance facilitiesto the aqueduct to meet Metropolitan's water supply needs. Inaddition, indigenous groundwater would also be transferred utilizingthe same facilities. The Program will have the capacity to convey,either for storage or transfer, up to 150,000 acre-feet in any givenyear during the 50-year term of the Program. Pursuant to the Principles, during storage operations,Metropolitan will pay a $50 fee per acre-foot for put of water intostorage, a $40 fee per acre-foot for return of water from storage, anda storage fee of $5 per acre-foot for every year that water is storedin the groundwater basin for the first 5 million acre-feet of storedSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. water. On the transfer of indigenous water, Metropolitan will pay abase rate of approximately $230 per acre-foot, which will be adjustedaccording to a water price formula. Additionally, recognizing thatdelivery of the Company's high-quality, indigenous groundwater to theaqueduct provides a significant water quality benefit, Metropolitanwill pay the Company a water quality fee for both transferred andreturned water. Additionally, Metropolitan has committed to minimumlevels of utilization of the Program for both storage of ColoradoRiver aqueduct water and transfer of indigenous groundwater. The Program facilities, including spreading basins, extractionwells, conveyance pipeline and a pumping plant, are estimated to costbetween $125 and $150 million, and both parties will share thesecosts. A pilot spreading basin project was constructed to model andto analyze the storage and extraction of water. All operational costsof the Program, including annual operations, maintenance and energycosts, will be an obligation of Metropolitan. The Principles call for the establishment of a comprehensivegroundwater monitoring and management plan to ensure long-termprotection of the groundwater basin. The final agreement may reflectadjustments to these Principles in order to reflect informationidentified during the ongoing environmental review process and will besubject to approval by the respective Boards of both parties. Before construction and operation of the Program can commence, the environmental review process must be completed including the certification and approval of a final EIR/EIS by the appropriate regulatory agencies, Metropolitan for state law purposes and the United States Bureau of Land Management ("BLM") for federal law purposes. The process for obtaining these approvals is often difficult and time-consuming as the process can be highly political and often draws opposition from third parties. During 1999, the Company and Metropolitan completed several significant milestones in the environmental review process, entering its final stages with thepublication of a draft EIR/EIS in November 1999 for public review andcomment. The public comment period closed in March 2000. All of the comments received will be considered and addressed by Metropolitan and BLM as part of the environmental review process. The draft EIR/EIS incorporated a wide array of technical, environmental and engineering analyses and studies completed during 1999, including the operation of a pilot spreading basin project that serves as a prototype for the full-scale program, and optimization studies for the design of the capital facilities. The Program is anticipated to be operational by the year 2001. PIUTE. The Company's water development operations at its 6,000 acrePiute property are located in eastern San Bernardino County approximately15 miles from the resort community of Laughlin, Nevada and about 12 milesfrom the Colorado River town of Needles, California. Hydrological studiesand testing of a full-scale production well have demonstrated that thislandholding is underlain by recharging groundwater of excellent quality andadditional technical and environmental investigations are ongoing regardingthe development of the property for a variety of uses. See Item 2, "Properties - The Piute Property." DANBY LAKE AND OTHER. The Company currently owns or controlsadditional acreage located throughout other areas of the Mojave Desert,such as Danby Lake. This area is located approximately 30 miles southeastof the Company's Cadiz/Fenner Valley property and 10 miles north of theColorado River Aqueduct. The Company's initial hydrological studiesconfirm that this property has excellent storage and supply capabilities. SUN WORLD WATER RESOURCES. Sun World has valuable water rights invarious parts of central and southern California. The Company believesthat with increasing water shortages in California, land with prime waterrights will increase substantially in value.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sun World's landholdings and associated water resources are locatedadjacent to the major aqueduct systems of central and southern California,and in close proximity to the Colorado River. These holdings complementthe Company's other groundwater resources and will enhance the Company'sopportunities to participate in a broad variety of water storage, supply,exchange or banking programs. By way of example, the Company has identifiedmore than 10,000 acre-feet of excess water that the Company plans toeither transfer to other Company properties or exchange or transfer to otherwater users without affecting current agricultural production.AGRICULTURAL OPERATIONS The Company is one of California's largest vertically integratedagricultural companies combining an extensive research and developmentprogram, year-round sourcing, farming and packing activities and strongmarketing capabilities. For the twelve months ended December 31, 1999, SunWorld recorded revenues of $115.2 million. PRODUCT LINE. Sun World ships approximately 75 different varieties offresh fruits and vegetables to all 50 states and to more than 25 foreigncountries. Sun World is a leading grower and marketer of table grapes,seedless watermelons, colored sweet peppers, citrus (oranges and lemons)and stonefruit (plums, peaches, nectarines and apricots). It is also oneof California's largest independent marketers of grapefruit, tangerines,mandarins, navel oranges and dates. The breadth and diversity of the product line helps to minimize theimpact of individual crop earnings fluctuations. Further, the breadth anddiversity of its product offering provides Sun World with greater presenceand influence with its grocery and food service customers. Although many fruits and vegetables are fungible commodities, SunWorld has adopted a strategy of developing and acquiring specialty producevarieties with unique characteristics which differentiate them fromcommodity produce varieties. Most of these varieties are harvested duringfavorable marketing windows when available supply from competitors islimited. These specialty varieties typically command a price premium andare less subject to the same price volatility than the commodity varieties.They also provide Sun World with a dominant position in a number of productcategories. Examples of the branded produce grown and marketed by SunWorld include Superior Seedless(R) table grapes, Midnight Beauty(R) tablegrapes, Black Diamond(R) plums, Honeycot(R) apricots, and Amber Crest(R)peaches. These products evolved through a combination of internaldevelopment and acquisition. Sun World's research and development centeris dedicated to developing additional high value proprietary varieties.See "Proprietary Product Development," below. FARMING OPERATIONS. Sun World's farming operations producedapproximately 8 million units of fruits and vegetables during the yearended December 31, 1999. Its principal agricultural lands are located inthe San Joaquin and Coachella Valleys of California. See Item 2,"Properties." Sun World properties are primarily dedicated to producing permanentcommercial crops and, to a lesser extent, annual (or row) crops.Additionally, over 1,800 acres are currently utilized for developing crops(e.g., vines and trees that have not yet reached a commercial maturity).The Company has implemented a crop development plan, which has redeployedmarginally productive acreage to produce more varieties of crops, whichpossess superior proprietary characteristics and/or are available fordelivery at peak pricing windows throughout the year. Additionally, during 1998, the Company acquired two citrus ranchestotaling approximately 2,000 acres in the San Joaquin Valley. Theseacquisitions reflect the Company's strategy of expanding its contra-seasonal operations to complement the summer table grape and stonefruitproduction.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PACKING AND MARKETING OPERATIONS. In addition to merchandising itsown products, Sun World provides marketing and packing services to thirdparty growers. For third party growers, Sun World provides three keybenefits: (i) Sun World's brand name, proprietary products and reputationwith wholesalers resulting in a significant pull through effect; (ii) afull complement of handling services that include harvest, cooling, packingand shipping; and (iii) an internal sales and marketing force servicingover 650 customers throughout the world. Sun World's packing facilities handled approximately 9 million unitsof produce during the year ended December 31, 1999. These facilitiesprovide harvesting, packing, cooling and shipping services for Sun Worldproduction, as well as for other commercial clients. Currently, Sun Worldowns three facilities, two of which are located in the Coachella Valley andone of which is located in the San Joaquin Valley. See Item 2,"Properties." Sun World's vertically integrated operations enable it to offer themarket a continuous stream of new specialty products, which receive amarket premium. As a large grower, Sun World is able to manage the qualityof its own product line, and as a significant packer/marketer, Sun Worldworks with other growers to ensure product quality through packing anddistribution. During fiscal 1999, the Company sold approximately 11million units with wholesale value of approximately $118 million. Thisamount includes sale proceeds received for units sold on behalf of thirdparty growers for which only the sales commission and packing revenuesreceived by Sun World are included in Sun World's reported revenues. Sun World's sourcing, both external and internal, is diversifiedgeographically throughout California. Sun World's owned and leased farmingoperations are located throughout California from the Coachella Valley inthe south to central California's San Joaquin Valley, as well as operationsnear the coast. Sun World sources externally produced product fromthroughout California, from other areas of the United States, and frominternational sources. This geographic diversification not only reducesthe impact that unfavorable weather conditions and infestations could haveon Sun World's operations, but also provides Sun World with a longerselling season for many crops since the harvests occur at different times.In addition, geographic diversification also allows Sun World the abilityto provide the quality and breadth of product throughout the year which isbeing demanded by retailers. Sun World's customer base consists of more than 650 accounts includingsupermarket retailers, food service entities, warehouse clubs, andinternational trading companies located in approximately 25 countries.Domestic customers include national retailers such as Safeway Stores andAlbertson's; club stores, including Costco and Sam's; and food servicedistributors, including Sysco and Alliant. Approximately 10% of SunWorld's products were marketed outside of the United States in Canada,Europe, Australia, Japan, Hong Kong, Singapore, Malaysia and Taiwan in1999. Only one national retailer, Safeway Stores, (representingapproximately 13%) accounted for more than 10% of Sun World's revenues in1999. As is consistent with industry practice, Sun World does not maintainwritten agreements with this or its other significant customers. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history ofproduct innovation, and its research and development center maintains afruit breeding program that has introduced dozens of proprietary fruitvarieties in the last six years. Recent product successes include theMidnight Beauty(R) seedless black table grape, Black Diamond(R) plum, theAmber Crest(R) peach and the Honeycot(R) apricot. Management believes thatthere are several other promising grape and stonefruit varieties for commercial planting and production in the near future both domesticallyand internationally. Sun World utilizes approximately 235 acres for its research anddevelopment center and crop experimentation. The research and developmentcenter facility houses tissue culture rooms, growth rooms, fourSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. greenhouses, and over 200 acres of experimental growing crops. The amountsexpended by Sun World on its research and development activities totaled$1,450,000 for the year ended December 31, 1999, $1,249,000 for the yearended December 31, 1998 and $809,000 for the year ended December 31, 1997. As a result of over 20 years of research and development, Sun Worldholds rights to approximately 450 patents and trademarks around the world.The patent registrations exist in most major fruit producing countries andthe trademarks are held in both fruit producing and consuming regions.Sun World's patents have varying expiration dates occurring within the nextseveral years through 2024; however, the expiration of any individualpatent will not have a material effect upon Sun World's operations. Enhancing the value of the proprietary product portfolio throughlicensing is an integral part of Sun World's growth strategy. Sun Worldcontinues to seek key licensing opportunities with key strategic partnersto introduce, trial and produce Sun World's proprietary products in majorproduction areas that do not have appropriate plant protection rights tocompete with Sun World's own domestic production. These licensing agreements will provide Sun World with a long-term annual revenue stream based upon a royalty fee for each box of proprietary fruit sold over the lives of the licensed trees or vines approximating 25 to 40years. Currently, Sun World has licensing agreements in place in the United States, South Africa, Australia, Israel, Spain and Morocco and expects additional licensing agreements to be signed in 2000. An example of Sun World's licensing success is the definitive agreement entered into with the South African fruit industry granting long-term license agreements to South African fruit companies seeking to produce and export Sun World's proprietary Sugraone grape variety (more commonly known as Sun World's private Superior Seedless(R) grapes). These agreements also provided Sun World compensation for past Sugraone grapevine plantings and fruit sales and grant Sun World exclusive North American marketing rights for these Sugraone grapes. The Company believes these licensing agreements have established a precedent that will change the way new and improved varieties of produce will be brought to market in the future. The combination of the Company's innovative proprietary products andexpertise in desert farming and water resources management led to SunWorld's appointment by Kingdom Agricultural Development Company (KADCO), acompany currently 100% controlled by His Royal Highness Prince Alwaleed BinTalal Bin Abdulaziz Alsaud, to develop and manage up to 100,000 acres ofagricultural land in southern Egypt, called the Tushka Project. The TushkaProject is the cornerstone in the Egyptian government's multi-billiondollar South Valley Project, an immense infrastructure plan designed toirrigate more than 500,000 acres of desert land to foster urban andagricultural development. The South Valley Project involves theconstruction of one of the world's largest pumping stations and a 43-mile (70 km) canal that diverts water from Egypt's Lake Nasser, the reservoir formed on the Nile River by the Aswan High Dam, to four separate parcels of land - the first being the Tushka site. Constructionis well underway with approximately 20 miles of the canal completed and the pumping station expected to be operational in 2001. Theinitial commercial plantings will follow completion of the canal constructionto the Tushka site, which is expected to occur in 2002. In addition to SunWorld's role in Tushka, Cadiz and KADCO also agreed to form an entity topursue the development and management of water resources in the region. As compensation for project development and management of theTushka Project, Sun World will earn annually an equity interest in KADCOand has been granted an option to purchase additional shares. The combinedequity interest will equate to approximately 10% ownership of KADCO. Inaddition, Sun World will receive annual marketing and licensing fees equalto the greater of 1.5% of gross revenues or 5% of EBITDA from the project.No capital investment is required by Sun World, and KADCO will reimburseSun World for all expenses incurred. The first term of the managementagreement will be for four years with an option to extend for multiplefurther terms. The Company and KADCO signed the final contract in October1999.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SEASONALITY In connection with the water resource development activities of theCompany, revenues are not expected to be seasonal in nature. Sun World's agricultural operations are impacted by the generalseasonal trends that are characteristic of the agricultural industry. SunWorld has historically received the majority of its net income during themonths of June to October following the harvest and sale of its table grapeand stonefruit crops. Due to this concentrated activity, the Company has,therefore, historically incurred a loss with respect to its agriculturaloperations in the other months during the year.COMPETITION The Company faces competition for the acquisition, development andsale of its properties from a number of competitors, some of which havegreater resources than the Company. The Company may also face competitionin the development of water resources associated with its properties.Since California has scarce water resources and an increasing demand foravailable water, the Company believes that location, price and reliabilityof delivery are the principal competitive factors affecting transfers ofwater in California. The agricultural business is highly competitive. Sun World'scompetitors include a limited number of large international food companies,as well as a large number of smaller independent growers and growercooperatives. No single competitor has a dominant market share in thisindustry due to the regionalized nature of these businesses. In additionto drawing from its proprietary base of products, Sun World utilizes brandrecognition, product quality, harvesting in favorable production windows,effective customer service and consumer marketing programs to enhance itsposition within the highly competitive fresh food industry. Consumer andinstitutional recognition of the Sun World trademark and related brands andthe association of these brands with high quality food products contributeto Sun World's ability to compete in the market for fresh fruit andvegetables.EMPLOYEES As of December 31, 1999, the Company employed a total of 965 full-timeemployees. Sun World, throughout the year, engages various part-time andseasonal employees, with a seasonal high of approximately 2,100 part-timeemployees. Additionally, the Company contracts with outside laborcontractors for personnel used in the farming operations with a seasonalhigh of approximately 6,000 people. Approximately 220 of the Company'semployees are represented by a labor union pursuant to contracts renewed in1999 that expire in 2002. Generally, the Company believes that its employeerelations are good.REGULATION Certain areas of the Company's operations are subject to varyingdegrees of federal, state and local law and regulations. The Company'sagricultural operations are subject to a broad range of evolvingenvironmental laws and regulations. These laws and regulations include theClean Air Act, the Clean Water Act, the Resource Conservation and RecoveryAct, the Federal Insecticide, Fungicide and Rodenticide Act and theComprehensive Environmental Response, Compensation and Liability Act.Compliance with these foreign and domestic laws and related regulations isan ongoing process, which is not currently expected to have a materialeffect on the Company's capital expenditures, earnings or competitiveposition. Environmental concerns are, however, inherent in most majoragricultural operations, including those conducted by the Company, andthere can be no assurance that the cost of compliance with environmentallaws and regulations in the future will not be material. However, neitherthe Company nor Sun World expects to incur any material capitalSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. expenditures for environmental control facilities during 2000. The Company's food operations are also subject to regulations enforcedby, among others, the U.S. Food and Drug Administration and state, localand foreign equivalents and to inspection by the U.S. Department ofAgriculture and other federal, state, local and foreign environmental andhealth authorities. Among other things, the U.S. Food and DrugAdministration enforces statutory standards regarding the safety of foodproducts, establishes ingredients and manufacturing procedures for certainfoods, establishes standards of identity for foods and determines thesafety of food substances in the United States. Similar functions areperformed by state, local and foreign governmental entities with respect tofood products produced or distributed in their respective jurisdictions.Existing environmental regulations have not, in the past, had a materiallyadverse effect upon the operations of the Company, and the Company believesthat existing environmental regulations will not, in the future, have amaterially adverse effect upon its operations. There can be no assurances,however, as to the effect of any environmental regulations, which may beadopted in the future. As the Company proceeds with the development of its properties,including the Program, the Company will be required to satisfy variousregulatory authorities that it is in compliance with the laws, regulationsand policies enforced by such authorities. Groundwater development, andthe export of surplus groundwater for sale to single entities such aspublic water agencies, is not subject to regulation by existing statutesother than general environmental statutes applicable to all developmentprojects. Additionally, the Company must obtain a variety of approvals andpermits from state and federal governments with respect to issues that mayinclude environmental issues, issues related to special status species,issues related to the public trust, and others. Because of thediscretionary nature of these approvals and concerns which may be raised byvarious governmental officials, public interest groups and other interestedparties during both the approval and development process, the Company'sability to develop properties and realize income from its projects,including the Program, could be delayed, reduced or eliminated.ITEM 2. PROPERTIES The Company currently leases its executive offices in Santa Monica,California. The Company also maintains a development office in SanBernardino, California. Sun World owns its main packing facility(including sales and administrative offices) in Bakersfield, California andowns two packing facilities (including sales offices) in Coachella,California. The Company and each of its subsidiaries believe that theirproperty and equipment are generally well maintained, in good operatingcondition and adequate for their present needs. The following is a description of the Company's significantproperties. THE CADIZ/FENNER PROPERTY In 1984, the Company conducted an investigation of the feasibility ofthe agricultural development of land located in the Mojave desert nearCadiz, California, and confirmed the availability of prime quality water incommercial quantities appropriate for agricultural development. Since1985, the Company has acquired over 27,000 acres in the Cadiz and FennerValleys of eastern San Bernardino County approximately 30 miles north ofthe Colorado River Aqueduct. Additional numerous independent geotechnical and engineering studiesconducted since 1985 have confirmed that the Cadiz/Fenner property overliesa natural groundwater basin which is ideally suited for underground waterstorage and dry-year transfers as contemplated in the Program. See Item 1,"Business - Narrative Description of Business - Water ResourceDevelopment."Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In November 1993, the San Bernardino County Board of Supervisorsunanimously approved a General Plan Amendment establishing an agriculturalland use designation for 9,600 acres at Cadiz for which 1,600 acres havebeen developed and are leased to Sun World. This Board action representedthe largest land use approval on behalf of a single property holder in theCounty's known history. This action also approved permits to constructinfrastructure and facilities to house as many as 1,150 seasonal workersand 170 permanent residents (employees and their families) and allows forthe withdrawal of more than 1,000,000 acre-feet of groundwater from thegroundwater basin underlying the Company's property. Substantially all Cadiz/Fenner acreage is held in fee directly by theCompany.THE SUN WORLD PROPERTIES FARM PROPERTIES. Sun World owns approximately 19,200 acres and leasesapproximately 3,000 acres of improved land in central and southernCalifornia. The majority of this land is used for the cultivation ofpermanent and annual crops and support activities, including packingfacilities. Sun World-owned farming property is divided between six distinctgeographic regions: Madera, Bakersfield, Tulare and Arvin (located withinthe San Joaquin Valley), Coachella (located in the state's southeasterncorner near Palm Springs) and Blythe (located approximately 100 miles eastof the Coachella Valley adjoining the Colorado River). PACKING AND HANDLING FACILITIES. Sun World owns three packing andhandling facilities: one facility located in the San Joaquin Valley atKimberlina near Bakersfield, a facility in the Coachella Valley, and athird facility also in the Coachella Valley that is leased to a thirdparty. The Kimberlina facility, located on an 83 acre parcel owned by SunWorld, consists of two highly automated production lines for packingstonefruit and citrus, cold storage areas, and office space. Sun World's Coachella Valley facility consists of three independentbuildings located on 26 acres of industrial commercial zoned land inCoachella, California. One building is used primarily for packing citrus,receiving table grapes, cold storage and office space. A second buildingis used primarily for receiving, cooling and storing table grapes and rowcrops. The third building is used primarily for packing watermelons andlemons and for storage.THE PIUTE PROPERTY The Piute property consists of approximately 6,000 acres and islocated approximately 60 miles northeast of Cadiz and approximately 15miles west of the Colorado River and Laughlin, Nevada, a small, fastgrowing town with hotels, casinos and water recreation facilities. TheCompany identified the Piute property for acquisition by a combination ofsatellite imaging and geological techniques, which were used by the Companyto identify water at Cadiz. The Piute acreage adjoins Highway 95, which is a direct route to LasVegas, approximately 60 miles north. The Santa Fe Railroad passes throughthe land and Interstate 40 is approximately 12 miles to the south. All ofthe acreage is held in fee directly by the Company. The Company has commenced the development of the water resources ofthis property. See Item 1, "Business Narrative - Description of Business -Water Resource Development."OTHER PROPERTIESSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition to the Cadiz and Piute properties, the Company ownsapproximately 4,300 additional acres in the Mojave Desert, including theDanby Lake property as to which development has not yet commenced. The Company will continue to seek to acquire additional propertiesboth in southern California desert regions and elsewhere which are believedto be suitable for development.DEBT SECURED BY PROPERTIES Of the Company's outstanding debt at December 31, 1999, $119.1 millionrepresents loans secured by substantially all of Sun World's properties and$23.7 million represents loans secured by the majority of the Company's non-Sun World properties. Information regarding interest rates and principalmaturities is provided in Note 9 to the consolidated financial statements.ITEM 3. LEGAL PROCEEDINGS In December 1995, an action styled CADIZ LAND COMPANY, INC. VS. COUNTYOF SAN BERNARDINO, ET AL., CASE NO. BCV 02341 was filed by the Company inSuperior Court in San Bernardino County. The action challenges the variousdecisions by the County relative to the proposed construction and operationof a landfill (the "Rail-Cycle Project") near property owned by the Companyin Cadiz, California. The action seeks to set aside such decisions and toobtain compensatory damages arising therefrom. Named in this action, inaddition to the County, were the County's Board of Supervisors, threeindividual members of the Board of Supervisors, a County employee and Rail-Cycle, L.P., whose general partner is controlled by Waste Management, Inc.("WMI"). On or about September 30, 1998, the Court granted defendants'motions for summary judgement, finding that the Company's procedural dueprocess claim is not ripe due to the fact that, as the Rail-Cycle Projectcannot proceed without voter approval of a business license tax, there isno actual concrete injury to the Company at this point in time. TheCompany has appealed this decision. On October 24, 1997, the Company filed suit in the United StatesDistrict Court, Central District of California (CADIZ LAND COMPANY, INC. V.WASTE MANAGEMENT, INC., ET AL., CASE NO. CV 97-7827 WMB (MANx) (the"Federal Court Action") against WMI, certain key executives and consultantsof WMI, and certain other parties in interest as to the Rail-Cycle Project.The Complaint as originally filed asserted claims arising under bothfederal and state law from activities of defendants adverse to the Companyin connection with the Rail-Cycle Project. In December 1997, the federaldistrict judge, on his own motion, severed the state law claims from thecomplaint and dismissed them without prejudice. Those claims werereasserted in a state proceeding filed by the Company on January 8, 1998 inLos Angeles Superior Court (West Division) (CADIZ LAND COMPANY, INC. V.WASTE MANAGEMENT, INC., CIVIL ACTION NO. SC 050743 ("the State CourtAction"). In the Federal Court Action, appeals are pending with the NinthCircuit Court of Appeals of the trial court's dismissal of the Company'sclaims which are not being pursued in the State Court Action including theCompany's claims for stock manipulation pursuant to Section 10(b) of theExchange Act. In the State Court Action, the Company filed its SecondAmended Complaint on or about February 22, 2000. The Company intends tocontinue to vigorously prosecute its claims against WMI. During 1998, felony complaints were filed by the San BernardinoDistrict Attorney charging a Waste Management employee and a consultantwith multiple felony counts based upon their activities in connection withthe Rail-Cycle Project. As a result thereof, the WMI consultant pleadednolo contendere to four felony counts, including stock fraud and conspiracyto commit stock fraud and was sentenced to six years in prison.Subsequently, during 1998, an indictment was handed down by a SanBernardino Special Criminal Grand Jury, which charged WMI, certainaffiliates and employees with multiple felony counts, all arising fromSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WMI's scheme to sabotage the Company in retaliation for the Company'sopposition to the Rail-Cycle Project. In or about February 1999, a FirstAmended Indictment was filed. The prosecution of WMI and the otherremaining defendants was set to commence on January 10, 2000, but the trialdate was continued. A new trial date has not yet been selected. Prior to the acquisition of Sun World, the Internal Revenue Service(IRS) had filed claims against Sun World and certain of its subsidiaries(collectively "the Sun World Claimants") for taxes refunded for workersthat the IRS claims were employees. The Sun World Claimants contend thatthe workers are excluded from the definition of employment under theInternal Revenue Code. On January 21, 1998, the District Court ruled infavor of one of the Sun World Claimants. The IRS has appealed thisdecision. Management believes that the likelihood of an unfavorable futureoutcome with regard to this matter is remote. Accordingly, the Companyreleased $3,780,000 of reserves related to this matter at December 31, 1997which are reported on the Consolidated Statement of Operations asLitigation Benefit. The Company is involved in other legal and administrative proceedingsand claims. In the opinion of management, the ultimate outcome of eachproceeding or all such proceedings combined will not have a materialadverse impact on the financial position of the Company.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The results of the Company's Annual Meeting of Stockholders held May10, 1999 were reported in the Company's Quarterly Report on Form 10-Q forthe quarterly period ended June 30, 1999. PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the Nasdaq National StockMarket under the symbol "CLCI." The following table reflects actual salestransactions. The high and low range of the sales price of the commonstock for the dates indicated have been provided by Nasdaq. High Low Quarter Ended Sales Price Sales Price ------------- ---------- ----------- 1997: March 31 $ 6.063 $ 4.838 June 30 $ 6.250 $ 4.813 September 30 $ 8.063 $ 5.000 December 31 $ 9.375 $ 6.125 1998: March 31 $11.938 $ 7.875 June 30 $14.188 $10.625 September 30 $13.438 $ 7.750 December 31 $ 9.500 $ 5.875 1999: March 31 $ 9.125 $ 7.000 June 30 $11.625 $ 7.250 September 30 $11.125 $ 8.688 December 31 $ 9.750 $ 7.875 On March 20, 2000, the high, low and last sales prices for the shares, as reported by Nasdaq, were $8.50, $8.00, and $8.125, respectively. Options in the Company's stock trade under the symbol "QAZ." The Company also has an authorized class of 100,000 shares ofSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. preferred stock ("Preferred Stock"). To date, the Board of Directors hasdesignated three series of Preferred Stock for issuance, including (i) upto 60,000 shares of Series A Preferred, of which 27,631 shares have beenissued and no shares remain outstanding; (ii) up to 1,000 shares of SeriesB Preferred, of which 1,000 shares have been issued and no shares remainoutstanding; and (iii) up to 365 shares of Series C Preferred, of which 340shares have been issued and no shares remain outstanding. The Board ofDirectors has no present plans or arrangements for the issuance ofadditional shares of Preferred Stock. On May 10, 1999 the Company adopted a Stockholders' Rights Plan. Inconnection with the Rights Plan, and as further described in the RightsPlan, the Company declared a dividend of one preferred share purchase rightfor each outstanding share of the Company's common stock outstanding at theclose of business on June 1, 1999. The estimated number of beneficial owners of the Company's CommonStock is approximately 2,817, and the number of stockholders of record onMarch 20, 2000 was 211. To date, the Company has not paid a cash dividend on Common Stock.The Company's ability to pay such dividends is subject to certain covenantspursuant to agreements with the Company's lenders. During the quarter ended December 31, 1999, the Company issued 150,000warrants to its primary lender to purchase common stock at an exerciseprice of $6.50 per share in connection with extending the senior term loanfacility. The issuance of the warrants was not registered under theSecurities Act of 1933, as amended (the "Securities Act"). The Companybelieves that the transaction described is exempt from the registrationrequirements of the Securities Act by virtue of Section 4(2), thereof astransactions not involving any public offerings. All other securities soldby the Company during the year ended December 31, 1999, which were notregistered under the Securities Act have previously been reported in theCompany's Quarterly Reports on Form 10-Q.ITEM 6. SELECTED FINANCIAL DATA The following selected financial data insofar as it relates to theyears ended December 31, 1999, 1998, and 1997, the nine months endedDecember 31, 1996, and to the year ended March 31, 1996 has been derivedfrom financial statements audited by PricewaterhouseCoopers LLP,independent accountants. The information that follows should be read inconjunction with the audited consolidated financial statements and notesthereto for each of the three years in the period ended December 31,1999 included elsewhere herein. See also Item 7, "Management's Discussionand Analysis".($ in thousands, except for per share data) Nine Months Year Year Ended December 31, Ended Ended --------------------------- December 31, March 31, 1999 1998 1997 1996(1) 1996 ---- ---- ---- ---- ----Statement of Operations Data: Total revenues $ 115,229 $ 106,544 $ 100,157 $ 23,780 $ 1,441 Net loss (8,594) (7,470) (8,538) (5,997) (8,487) Less: Preferred stock dividends - - (1,213) (674) - Imputed dividend on preferred stock - - - (2,451) -Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------- ------- ------- -------- ------- Net loss applicable to common stock $ (8,594) $ (7,470) $ (9,751) $ (9,122) $ (8,487) ======== ========= ========= ======== ========Per share: Net loss $ (.25) $ (.23) $ (.33) $ (.44) $ (.48) ======== ========= ========= ======== ========Weighted-average common shares outstanding 34,678 33,173 29,485 20,500 17,700 ======== ========= ========= ======== ======== December 31, ----------------------------------- March 31, 1999 1998 1997 1996 1996 ---- ---- ---- ---- ----Balance Sheet Data: Total assets $ 214,102 $ 214,359 $ 203,049 $ 230,790 $ 38,663 Long-term debt $ 142,089 $ 142,317 $ 131,689 $ 149,111 $ 68 Redeemable preferred stock $ - $ - $ - $ 27,431 $ - Preferred stock, common stock and additional paid-in capital $ 136,552 $ 127,998 $ 121,199 $ 88,808 $ 73,149 Accumulated deficit $ (86,882) $ (78,288) $ (70,818) $ (61,067) $(54,396) Stockholders' equity $ 49,670 $ 49,710 $ 50,381 $ 27,741 $ 18,753 (1) Subsequent to the Company's September 13, 1996 acquisition of Sun World, the Company changed its fiscal year end from March 31 to December 31 in order to align the Company's year end with that of Sun World. Additionally, as a result of the Sun World acquisition, the operations for the nine months ended December 31, 1996 include the results of operations of Sun World for the period September 14, 1996 through December 31, 1996.ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSRESULTS OF OPERATIONS The consolidated financial statements set forth herein for each of thethree years in the period ended December 31, 1999, reflect the results ofoperations of the Company and its wholly-owned subsidiaries including SunWorld. A summary of the Sun World elements which management of the Companybelieves is essential to an analysis of the results of operations for suchperiods is presented below. For purposes of this summary, the term SunWorld will be used, when the context so requires, with respect to theoperations and activities of the Company's Sun World subsidiary, and theterm Cadiz will be used, when the context so requires, with respect tothose operations and activities of the Company not involving Sun World. The Company's net income or loss in future fiscal periods will belargely reflective of (a) the operations of the Company's water developmentactivities including the Cadiz Groundwater Storage and Dry-Year SupplyProgram (the "Program") and (b) the operations of Sun World. Sun Worldconducts its operations through four operating divisions: farming, packing,marketing and proprietary product development. Net income from farmingoperations varies from year to year primarily due to yield and pricingfluctuations which can be significantly influenced by weather conditions,and are, therefore, generally subject to greater annual variation than SunSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. World's other divisions. However, the geographic distribution of SunWorld's farming operations within California and the diversity of its cropmix makes it unlikely that adverse weather conditions would affect all ofSun World's properties or all of its crops in any single year.Nevertheless, net profit from Sun World's packing, marketing andproprietary product development operations tends to be more consistent fromyear to year than net profit from Sun World's farming operations. As such,Sun World continues to strategically add volume in the packing andmarketing areas that will complement Sun World's in-house production or fill in contra-seasonal marketing windows. Packing and marketing revenues from third-party growers currently represent less thanten percent of total Company revenues. Sun World has entered intoagreements internationally to license selected proprietary fruit varietiesand continues to pursue additional domestic and international licensingopportunities.YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998--------------------------------------------------------------------------- The Company's agricultural operations are impacted by the generalseasonal trends that are characteristic of the agricultural industry. SunWorld has historically received the majority of its net income during themonths of June to October following the harvest and sale of its table grapeand stonefruit crops. Due to this concentrated activity, Sun World has,therefore, historically incurred a loss with respect to its agriculturaloperations in the other months during the year. The table below sets forth, for the periods indicated, the results ofoperations for the Company's four main divisions (before elimination of anyinterdivisional charges), as well as the categories of costs and expensesincurred by the Company which are not included within the divisionalresults (in thousands): Year Ended December 31, 1999 1998 ---- ---- Divisional net income Farming $ 14,542 $ 7,547 Packing 7,656 7,320 Marketing 4,573 3,245 Proprietary product development 3,187 12,441 ------- -------- 29,958 30,553 General and administrative 10,913 10,487 Special litigation 937 1,308 Depreciation and amortization 8,891 8,688 Interest expense, net 17,811 17,540 ------- -------- Net loss $ (8,594) $ (7,470) ======== ======== FARMING OPERATIONS. Net income from farming operations totaled $14.5million for 1999 compared to $7.5 million in 1998. Farming revenues were$94.9 million and farming expenses were $80.4 million for 1999. For 1998,the Company had farming revenues of $78.1 million and farming expenses of$70.6 million. Farming profits for the San Joaquin Valley increased by $5.5million over 1998 profits while profits from the southern operations, whichinclude Coachella, Cadiz and Blythe, increased $0.5 million. The increasedprofits were primarily attributable to increased yields and higher F.O.B.prices for table grapes. Overall, F.O.B. prices for table grapes were up10% compared to 1998 while yields increased by 29% as a result of improvedweather conditions coupled with increased acreage as certain developingcrops turned commercial in 1999. These improvements were partially offsetby soft market conditions for watermelons due to excess supplies andreduced stonefruit yields on certain plum varieties due to the freezingSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. temperatures experienced during bloom. PACKING OPERATIONS. During 1999, Sun World's packing and handlingfacilities contributed $20.5 million in revenues offset by $12.8 million inexpenses resulting in $7.7 million in net income. In 1998, Sun Worldgenerated revenues of $20.5 million and expenses of $13.2 million resultingin net income of $7.3 million. The increase in net income from packingoperations is primarily attributable to the impact of (a) increasedhandling income resulting from increased table grape yields noted above;(b) a 14% increase in third-party citrus units packed resulting fromstronger demand due to reduced supplies from Florida and Texas offset by;(c) reduced packing and handling income from stonefruit due to reducedyields. During the year, Sun World packed 3.2 million units and moved anadditional 5.4 million units through the cold storage facilities for atotal of 8.6 million units processed through the packing operations. In1998, Sun World packed 3.6 million units and moved an additional 4.0million units through the cold storage facilities for a total of 7.6million units. Products packed or handled during the year primarilyconsisted of Sun World-grown table grapes, stonefruit, sweet red and yellowpeppers, seedless watermelons and lemons, as well as table grapes andcitrus products packed for third party growers. MARKETING OPERATIONS. Sun World's marketing operations includeselling, merchandising and promoting Sun World-grown products, as well asproviding these services for third party growers. During 1999,approximately 11.1 million units were sold primarily consisting of SunWorld-grown table grapes, stonefruit, sweet red and yellow peppers,seedless watermelons and lemons; and table grapes, seedless watermelon, andcitrus from domestic third party growers. These unit sales resulted inmarketing revenue of $9.4 million while marketing expenses totaled $4.8million for 1999 resulting in a net income from marketing operations of$4.6 million. During 1998, Sun World marketed 9.9 million units andgenerated revenues of $7.7 million offset by expenses of $4.5 millionresulting in net income of $3.2 million. The increase in units sold,revenues and net income primarily resulted from increased table grape andpepper production, and improved F.O.B. pricing for table grapes offset bydecreased stonefruit production. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history ofproduct innovation, and its research and development center maintains afruit breeding program that has introduced dozens of proprietary fruitvarieties during the past five years. During the year ended December 31,1999, net income from proprietary product development was $3.2 millionconsisting of revenues of $4.6 million offset by expenses of $1.4 million.For 1998, net income from Proprietary Product Development was $12.4 millionconsisting of revenues of $13.6 million offset by expenses of $1.2 million.The reduced revenues and net income in 1999 resulted from the sale in 1998of substantially all of the assets of ASC/SWB Partnership formerly namedAmerican SunMelon (the Partnership). Sun World has a 50% interest in thepartnership which contributed $0.3 million in net income during 1999compared to $10.7 million in 1998. GENERAL AND ADMINISTRATIVE. General and administrative expenses for1999 totaled $10.9 million compared to $10.5 million in 1998. The increaseprimarily resulted from additional administrative costs incurred due toactivity associated with the implementation of the Program. SPECIAL LITIGATION. The Company is engaged in lawsuits seekingmonetary damages in connection with the prevention of a landfill, which wasproposed to be located adjacent to its Cadiz/Fenner Valley properties. See"Item 3 - Legal Proceedings." During the year ended December 31, 1998,expenses including litigation costs and professional fees and expensestotaled $0.9 million as compared to $1.3 million during the year endedDecember 31, 1998. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expensesfor the year ended December 31, 1999 totaled $8.9 million compared to $8.7million for the year ended December 31, 1998. The increase is primarilySource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. attributable to depreciation related to property, plant and equipmentadditions made during the year. INTEREST EXPENSE. Net interest expense totaled $17.8 million duringthe year ended December 31, 1999 compared to $17.5 million during the yearended December 31, 1998. The following table summarizes the components ofnet interest expense for the two periods (in thousands): Year Ended December 31, 1999 1998 ---- ----- Interest on outstanding debt - Sun World $ 14,204 $ 14,394 Interest on outstanding debt - Cadiz 1,785 1,511 Amortization of financing costs 2,176 1,914 Interest income (354) (279) ------- ------- $ 17,811 $ 17,540 ======== ======= The increase in interest on outstanding debt during 1999 is primarilydue to (a) increased average outstanding balance on the $15.0 million CadizRevolver (as defined below) compared to 1998 and (b) amortization ofwarrants issued for the Cadiz Revolver and the Cadiz term loan facilitydescribed below. Financing costs, which include legal fees, loan fees andwarrants, are amortized over the life of the debt agreements.YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997-------------------------------------------------------------------------- The table below sets forth, for the periods indicated, the results ofoperations for the Company's four main divisions (before elimination of anyinterdivisional charges) as well as the categories of costs and expensesincurred by the Company which are not included within the divisionalresults (in thousands): Year Ended December 31, 1998 1997 ---- ---- Divisional net income Farming $ 7,547 $ 7,596 Packing 7,320 8,017 Marketing 3,245 4,126 Proprietary product development 12,441 2,615 ------- ------- 30,553 22,354 General and administrative 10,487 10,636 Special litigation 1,308 683 Litigation benefit - (3,780) Depreciation and amortization 8,688 7,745 Interest expense, net 17,540 15,608 ------- ------- Net loss $ (7,470) $ (8,538) ======= ======= FARMING OPERATIONS. Net income from farming operations totaled $7.5million for 1998 compared to $7.6 million in 1997. Farming revenues were$78.1 million and farming expenses were $70.6 million for 1998. For 1997,the Company had farming revenues of $77.9 million and farming expenses of$70.3 million. Farming profits from the Coachella Valley operationsincreased $1.7 million from 1997 due to strong F.O.B. prices for peppersSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. and watermelons and record table grape yields partially offset by lowertable grape F.O.B. prices due to downward pressure from the record yieldscoupled with increased production from Mexico. Farming profits for thedesert lemon operations at Blythe and Cadiz increased $2.7 million from1997 due to strong yields and strong F.O.B. pricing experienced in 1998.Farming profits from the San Joaquin Valley operations decreased $4.1million primarily due to reduced yields and higher harvest costs on theearly season table grapes in the San Joaquin Valley. These unfavorableresults were partially offset by improved F.O.B. pricing on plums and theremoval of certain underperforming peach and nectarine crops at theconclusion of the 1997 season. Farming profits for coastal sweet pepperswere off $0.4 million from 1997 primarily attributable to increasedproduction costs. PACKING OPERATIONS. During 1998, Sun World's four packing andhandling facilities contributed $20.5 million in revenues offset by $13.2million in expenses resulting in $7.3 million in net income. In 1997, SunWorld generated revenues of $23.1 million and expenses of $15.1 millionresulting in net income of $8.0 million. The decrease in net income frompacking operations is primarily attributable to the impact of reducedyields experienced in the farming operations during the year, particularlyfor the early season table grapes in the San Joaquin Valley. During theyear, Sun World packed 3.6 million units and moved an additional 4.0million units through the cold storage facilities for a total of 7.6million units processed through the packing operations. In 1997, Sun Worldpacked 4.1 million units and moved an additional 5.1 million units throughthe cold storage facilities for a total of 9.2 million units. Productspacked or handled during the year primarily consisted of Sun World-growntable grapes, stonefruit, sweet red and yellow peppers, seedlesswatermelons and lemons, as well as table grapes and citrus products packedfor third party growers. MARKETING OPERATIONS. Sun World's marketing operations includeselling, merchandising and promoting Sun World-grown products, as well asproviding these services for third party growers. During 1998,approximately 9.9 million units were sold primarily consisting of Sun World-grown table grapes, stonefruit, sweet red and yellow peppers, seedlesswatermelons and lemons; and table grapes, seedless watermelon, and citrusfrom domestic third party growers. These unit sales resulted in marketingrevenue of $7.7 million while marketing expenses totaled $4.5 million for1998 resulting in a net income from marketing operations of $3.2 million.During 1997, Sun World marketed 12.2 million units and generated revenuesof $9.0 million offset by expenses of $4.9 million resulting in net incomeof $4.1 million. The decrease in units sold, revenues and net incomeprimarily resulted from the decreased yields experienced in the farmingoperations, particularly the early season table grapes in the San JoaquinValley. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history ofproduct innovation, and its research and development center maintains afruit breeding program that has introduced dozens of proprietary fruitvarieties during the past five years. In addition, Sun World has a 50%interest in ASC/SWB Partnership, formerly named American SunMelon (the"Partnership"). During the year ended December 31, 1998, net income fromproprietary product development was $12.4 million consisting of revenues of$13.6 million ($10.7 million from the Partnership) offset by expenses of$1.2 million. The Partnership revenues relate to the operations of AmericanSunMelon for the period from January 1, 1998 to October 27, 1998 and therevenues related to the distribution of proceeds from the Partnership fromthe sale of substantially all of its assets to a third party on October 27,1998. In addition, the increase in proprietary product development incomeis also attributable to the licensing agreement for the Company's Sugraonetable grape variety entered into with the South African table grapeindustry in December 1998. Revenues of $1.1 million were recognized in1998 related to current and past royalties for fruit sales and for pastSugraone grapevine plantings. Net income of $2.6 million for the yearended December 31, 1997 related primarily to the operations of AmericanSunMelon and intercompany licensing royalties.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. GENERAL AND ADMINISTRATIVE. General and administrative expenses for1998 totaled $10.5 million compared to $10.6 million in 1997. SPECIAL LITIGATION. The Company is engaged in lawsuits seekingmonetary damages in connection with the prevention of a landfill, which wasproposed to be located adjacent to its Cadiz/Fenner Valley properties. See"Item 3 - Legal Proceedings." During the year ended December 31, 1998,expenses including litigation costs and professional fees and expensestotaled $1.3 million as compared to $0.7 million during the year endedDecember 31, 1997. LITIGATION BENEFIT. Prior to the acquisition of Sun World by theCompany, the Internal Revenue Service (IRS) had filed claims against SunWorld and certain of its subsidiaries, (collectively "the Sun WorldClaimants") for taxes refunded for workers that the IRS claims wereemployees. Sun World Claimants contend that the workers are excluded fromthe definition of employment under the Internal Revenue Code. On January21, 1998, the District Court ruled in favor of the Sun World Claimant whohad the largest outstanding claim. The IRS has appealed this decision.Management believes that the likelihood of an unfavorable future outcomewith regard to this matter is remote. Accordingly, Sun World released $3.8million of reserves related to this matter at December 31, 1997. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expensesfor the year ended December 31, 1998 totaled $8.7 million compared to $7.7million for the year ended December 31, 1997. The increase is attributableto depreciation related to property, plant and equipment additions madeduring the year and the timing of relief of depreciation costs frominventory due to the timing of the harvests. INTEREST EXPENSE. As a result of the acquisition of Sun World, netinterest expense totaled $17.5 million during the year ended December 31,1998 compared to $15.6 million during the year ended December 31, 1997.The following table summarizes the components of net interest expense forthe two periods (in thousands): Year Ended December 31, 1998 1997 ---- ---- Interest on outstanding debt - Sun World $ 14,394 $ 13,446 Interest on outstanding debt - Cadiz 1,511 875 Amortization of financing costs 1,914 1,879 Interest income (279) (592) ------- ------- $ 17,540 $ 15,608 ======== ======== The increase in interest on outstanding debt during 1998 is primarilyattributable to the Company's debt refinancing in April 1997, whereby SunWorld issued $115 million of 11-1/4% First Mortgage Notes and used theproceeds and existing cash balance to pay off approximately $130 million oflong-term debt. Interest expense is also higher due to (a) increasedborrowings for seasonal working capital needs primarily resulting from thedelay in harvest and sale of crops due to cooler weather conditions duringthe growing season, (b) amortization of warrants issued on the $15.0million Cadiz Revolver entered into during the fourth quarter of 1997 and(c) reduced average cash balances in 1998 compared to 1997 prior to thedebt refinancing resulting in lower interest income. Financing costs,which include legal fees, loan fees and warrants, are amortized over thelife of the debt agreements.LIQUIDITY AND CAPITAL RESOURCESGeneral Discussion of Liquidity and Capital ResourcesSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------------------------------------------------------ Based on the cash on hand at December 31, 1999 and the revolvingcredit facility in place for Sun World and anticipated payments under theProgram, as further discussed below, the Company believes it will be ableto meet its working capital needs over the next year without looking toadditional outside funding sources, although no assurances can be made.See "Current Financing Arrangements" below. Under Sun World's historical working capital cycle, working capital isrequired primarily to finance the costs of growing and harvesting crops,which generally occur from January through September with a peak need inJune. Sun World harvests and sells the majority of its crops during theperiod from June through October, when it receives the majority of itsrevenues. In order to bridge the gap between incurrence of expendituresand receipt of revenues, large cash outlays are required each year whichare financed through a $30 million revolving credit agreement (the "SunWorld Revolver"). See "Current Financing Arrangements - Sun World'sobligations" below.Current Financing Arrangements-------------------------------CADIZ OBLIGATIONS As Cadiz has not received significant revenues from its water resourceactivity to date, Cadiz has been required to obtain financing to bridge thegap between the time water resource development expenses are incurred andthe time that revenue will commence. Historically, Cadiz has addressedthese needs primarily through secured debt financing arrangements with itslenders, private equity placements and the exercise of outstanding stockoptions. As of December 31, 1999, Cadiz was obligated for approximately $10.3million under a senior term loan facility. During 1999, the Company enteredinto two extensions of the loan which extended the maturity date of theobligation to January 31, 2001; and reduced the interest rate from LIBORplus 400 basis points to LIBOR plus 200 basis points, payable semi-annually. In connection with obtaining the extensions, the Company issuedcertain warrants to purchase shares of the Company's common stock and alsorepriced certain warrants previously issued. Currently, the term lenderholds a senior deed of trust on substantially all of Cadiz' non-Sun Worldrelated property. Cadiz entered into a three year $15 million revolving credit facility(the "Cadiz Revolver") in November 1997. The Cadiz Revolver is secured bya second lien on substantially all of the non-Sun World assets of theCompany. Principal was originally due on December 31, 2000. In December1999, the Company extended the loan maturity to January 31, 2001. Inconnection with the extension, the interest rate was changed from a fixed8% to LIBOR plus 200 basis points. The Company had $15 million outstandingunder the Cadiz Revolver at December 31, 1999. As the Company continues to actively pursue its business strategy,additional financing specifically in connection with the Company's waterprograms may be required. Responsibility for funding the design,construction and program implementation costs of the capital facilities forthe Cadiz Groundwater Storage and Dry-Year Supply Program will,under currently developed principles and terms, be shared equally by theCompany and the Metropolitan Water District of Southern California("Metropolitan"). The Company is analyzing various alternatives forfunding its share of the estimated $125 million to $150 million cost of theprogram capital facilities. These funding alternatives include (a) long-term financing arrangements; (b) utilization of monies to be received fromMetropolitan for its initial purchase of 400,000 acre-feet of indigenousgroundwater; and (c) financing through Metropolitan by offsetting Cadiz'costs for capital facilities financing against payments due to Cadiz forstored or transferred water. Based upon the results of analyses performedSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. by investment banking firms retained by the Company, management believesthat several alternative long-term financing arrangements are available tothe Company.SUN WORLD OBLIGATIONS Sun World has outstanding $115 million of First Mortgage Notes (the"Sun World Notes") which will mature on April 15, 2004 and are publiclytraded and are registered under the Securities Act of 1933. The Sun WorldNotes are redeemable at the option of Sun World, in whole or in part, atany time on or after April 15, 2001. Interest accrues at the rate of 11-1/4% per annum and is payable semi-annually on April 15 and October 15 ofeach year. The Sun World Notes are secured by a first lien (subject tocertain permitted liens) on substantially all of the assets of Sun Worldand its subsidiaries, other than growing crops, crop inventories andaccounts receivable and proceeds thereof, which secure the Sun WorldRevolver, and certain real property pledged to third parties. The SunWorld Notes are also secured by the guarantee of Cadiz and the pledge byCadiz of all of the stock of Sun World. In April 1998, Sun World entered into the Sun World Revolver which isguaranteed by Cadiz. In order to meet its working capital needs, Sun Worldincreased the Revolver from $25 to $30 million in 1999. Sun World obtaineda one year extension of the revolver in February 2000. As of December 31,1999, no amount was outstanding under the Sun World Revolver. Additionally,Sun World has an intercompany revolving credit agreement with Cadiz forseasonal working capital needs as needed. No amount was outstanding underthe intercompany revolver as of December 31, 1999. CASH USED FOR OPERATING ACTIVITIES. Cash used for operatingactivities totaled $2.6 million for the year ended December 31, 1999, ascompared to cash used for operating activities of $7.9 million for the yearended December 31, 1998. The reduction in cash used for operatingactivities is primarily due to improved farming results from Sun Worldoffset by increases in accounts receivable and inventory primarilyresulting from the increased farming operations at December 31, 1999associated with Sun World's two new citrus ranches which were acquiredduring the fourth quarter of 1998. CASH USED FOR INVESTING ACTIVITIES. Cash used for investingactivities totaled $12.6 million for the year ended December 31, 1999, ascompared to cash provided by investing activities of $2.7 million for thesame period in 1998. In October 1998, Sun World received an initialdistribution of $15.2 million from a 50% owned partnership, AmericanSunMelon. This distribution resulted from the sale by the partnership ofsubstantially all of its assets to a third party for $35 million in cash.During 1999, the Company invested $3.5 million in developing crops, $3.2million in water programs, and $4.9 million for the purchase of property,plant and equipment including $2.6 million spent by the Company to exerciseits option to purchase certain land in Piute, California. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financingactivities totaled $6.1 million for the year ended December 31, 1999,consisting primarily of $6.8 million generated from the exercise of stockoptions offset by $0.7 million of repayments on long-term debt. Cashprovided by financing activities totaled $13.6 million for the year endedDecember 31, 1998 resulting from $12.0 million of additional borrowings onthe Cadiz Revolver, $2.2 million from the exercise of stock options offsetby $0.6 million of principal payments on long-term debt.OUTLOOK The Company is actively pursuing the development of its waterresources. Specifically, in July 1998, the Company and Metropolitanapproved the principles and terms for agreement for the Cadiz GroundwaterStorage and Dry-Year Supply Program. The principles and terms foragreement provide that Metropolitan will, during wet years or periods ofexcess supply, store surplus water from its Colorado River Aqueduct in theSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. groundwater basin underlying the Company's property. During dry years ortimes of reduced allocations from the Colorado River, the previouslyimported water, together with additional existing groundwater, will beextracted and delivered, via a conveyance pipeline, back to the aqueduct. Based upon negotiations with Metropolitan, the terms of the agreementare anticipated to be as follows: * Over the 50 year term of the agreement, Metropolitan will store a minimum of 700,000 acre-feet of Colorado River Aqueduct water in the Company's groundwater basin and purchase up to a minimum of 1,500,000 acre-feet of existing groundwater for transfer during dry-years. The Program will have the capacity to convey, either for storage or transfer, up to approximately 150,000 acre- feet in any given year. * During storage operations, Metropolitan will pay a $50 fee per acre-foot for put of water into storage and a $40 fee per acre-foot for return of water from storage, and a storage fee of $5 per acre- foot every year that water is stored in the groundwater basin for the first 5 million acre-feet of stored water. On the transfer of water, Metropolitan will pay a base rate of approximately $230 per acre-foot, which will be adjusted according to a water price formula. Additionally, recognizing that delivery of the Company's high-quality, indigenous groundwater to the aqueduct provides a significant water quality benefit, Metropolitan will pay the Company a water quality fee for both transferred and returned water. * Metropolitan will purchase the first 400,000 acre-feet in two installments -- $44 million payable upon environmental certification and the balance of $48 million, subject to adjustment for the water price index, payable upon completion of construction. Finally, Metropolitan will commit to purchase the additional 1,100,000 acre-feet at the earlier of delivery or in annual 40,000 acre-feet increments commencing at the start of operations. * The Program facilities, including spreading basins, extraction wells, conveyance pipeline and a pumping plant, are estimated to cost between $125 and $150 million, and both parties will share these costs. * All operational costs of the Program, including annual operations, maintenance and energy costs, will be the obligation of Metropolitan. The principles and terms for agreement call for the establishment of acomprehensive groundwater monitoring and management plan to ensure long-term protection of the groundwater basin. The final agreement may reflect adjustments to these principles and terms in order to reflect information identified during the ongoing environmental review process and will be subject to the approval of the respective Boards of both parties. Also, see "Narrative Description of Business - Water Resource Development -Cadiz Groundwater Storage and Dry-Year Supply Program." In addition to the development of its water resources, the Company isactively involved in further agricultural development and reinvestment inits landholdings. Such development will be systematic and in furtheranceof the Company's business strategy to provide for maximization of the valueof its assets. The Company also continually evaluates acquisitionopportunities, which are complimentary to its current portfolio of waterand agricultural resources. The Company believes that, based upon current levels of operations andanticipated growth, Sun World can adequately service its indebtedness andmeet its seasonal working capital needs utilizing available internal cash,the Sun World Revolver and, if necessary, through an intercompany revolverwith Cadiz. Cadiz expects to be able to meet its ordinary working capitalneeds, in the short-term, through a combination of cash on hand, paymentsSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. under the Program, quarterly management fee payments from Sun World,payments from Sun World under an agricultural lease whereby Sun World nowoperates the Company's 1,600 acres of developed agricultural property atCadiz, California, and the possible exercise of outstanding stock options.Except for the foregoing, additional intercompany cash payments between SunWorld and Cadiz are subject to certain restrictions under its currentlending arrangements.YEAR 2000 To date, the Company has not experienced any problems related to year2000 ("Y2K") within its own operations or with any significant customers orvendors. As such, management does not anticipate any significant Y2K issueswill occur in the future.CERTAIN TRENDS AND UNCERTAINTIES In connection with the "safe harbor" provisions of the PrivateSecurities Litigation Reform Act of 1995, the Company is hereby filingcautionary statements identifying important risk factors that could causethe Company's actual results to differ materially from those projected inforward-looking statements of the Company made by or on behalf of theCompany. The Company wishes to caution readers that these factors, amongothers, could cause the Company's actual results to differ materially fromthose expressed in any projected, estimated or forward-looking statementsrelating to the Company. The following factors should be considered inconjunction with any discussion of operations or results by the Company orits representatives, including any forward-looking discussion, as well ascomments contained in press releases, presentations to securities analystsor investors, or other communications by the Company. In making these statements, the Company is not undertaking to addressor update each factor in future filings or communications regarding theCompany's business or results, and is not undertaking to address how any ofthese factors may have caused changes to discussions or informationcontained in previous filings or communications. In addition, certain ofthese matters may have affected the Company's past results and may affectfuture results. RISKS INHERENT IN AGRICULTURAL OPERATIONS. The Company is subject torisks associated with its agricultural operations. Numerous factors canaffect the price, yield and marketability of the crops grown on theCompany's properties. Crop prices may vary greatly from year to year as aresult of the relationship between production and market demand. Forexample, the production of a particular crop in excess of demand in anyparticular year will depress market prices, and inflationary factors andother unforeseeable economic changes may also, at the same time, increaseoperating costs with respect to such crops. In addition, the agriculturalindustry in the United States is highly competitive, and domestic growersand produce marketers are facing increased competition from abroad,particularly from Mexico. There are also a number of factors outside ofthe Company's control that could, alone or in combination, materiallyadversely affect the Company's agricultural operations, such as adverseweather conditions, insects, blight or other diseases, labor problems suchas boycotts or strikes and shortages of competent laborers. The Company'soperations may also be adversely affected by changes in governmentalpolicies, social and economic conditions, and industry production levels. RISKS OF WATER DEVELOPMENT PROJECTS. The Company anticipates that itwill continue to incur operating losses from its non-Sun World operationsuntil such time as it is able to receive significant revenues from thedevelopment of its water development projects, including the CadizGroundwater Storage and Dry-Year Supply Program. In addition tothe risks associated with receiving all necessary regulatory approvals andpermits with respect to the Company's water development projects, theCompany may also encounter unforeseen technical difficulties, which couldSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. result in construction delays, and cost increases or determination that aproject is not feasible. The Company is continuing to negotiate the termsand conditions of water storage and supply programs with various Californiawater agencies (including Metropolitan with respect to preparing the finalagreement for the Cadiz Groundwater Storage and Dry-Year Supply Program).However, the outcome of these negotiations cannot be predicted with anydegree of certainty. The circumstances under which transfers or storage ofwater can be made and the profitability of any transfers or storage aresubject to significant uncertainties, including hydrologic risks ofvariable water supplies, risks presented by allocations of water underexisting and prospective priorities, and risks of adverse changes to orinterpretations of U.S. federal, state and local laws, regulations andpolicies. Other important risk factors that could cause the Company's actualresults to differ materially from those expressed or implied by the Companyor on behalf of the Company are discussed elsewhere within this Form 10-Kin the sections entitled: Seasonality, Regulation, Competition, andLiquidity and Capital Resources.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rateson long-term debt obligations that impact the fair value of theseobligations. The Company's policy is to manage interest ratesthrough the use of a combination of fixed and variable rate debt. TheCompany's interest rate risk management objective is to limit the impact ofinterest rate changes on earnings and cash flows and to lower its overallborrowing costs. Other instruments, such as interest rate swaps, options,floors, caps or collars may also be used depending upon market conditions.No such instruments were used in 1999. The table below presents the principal amounts, weighted-averageinterests rates, and fair values by year of scheduled maturities toevaluate the expected cash flows and sensitivity to interest rate changes(in thousands of dollars). Circumstances could arise which may causeinterest rates and the timing and amount of actual cash flows to differmaterially from the schedule below: Long-Term Debt ------------------------------------------- Average Variable AverageExpected Fixed Rate Interest Rate InterestMaturity Maturities Rate Maturities Rate---------- --------- ------------ -------- ----------- 2000 $ 439 7.7% $ 286 8.8% 2001 452 7.7% 25,631 8.2% 2002 374 7.7% 286 8.8% 2003 292 7.8% 286 8.8% 2004 115,313 11.2% 286 8.8% Thereafter 570 7.8% 284 8.8% ------- ----- ------- ----- Total $ 117,440 11.2% $ 27,059 8.2% ========= ===== ======== ===== Fair Value at 12/31/99 $ 120,315 $ 27,059 ========= ========ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted in response to PartIV hereof. See the Index to Consolidated Financial Statements. Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 1999.ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 1999.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 1999.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 1999. PART IVITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements. 3. Exhibits. The following exhibits are filed or incorporated by reference as part of this Annual Report. 3.1 Certificate of Incorporation of the Company, as amended(2) 3.2 Amendment to Certificate of Incorporation dated November 12, 1996(3) 3.3 Amendment to Certificate of Incorporation dated September 1, 1998(12) 3.4 Amended and Restated Certificate of Incorporation of Sun World, Inc.(9)Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3.5 Certificate of Merger of Sun World International, Inc. into Sun World, Inc.(9) 3.6 Agreement and Plan of Merger of Sun World, Inc. and Sun World International, Inc.(9) 3.7 Amended and Restated Bylaws of Sun World International, Inc.(9) 3.8 Bylaws of the Company, as amended (13) 4.1 Specimen Form of Stock Certificate for the Company's registered stock(12) 4.2 Certificate of Designations of 6% Convertible Series A Preferred Stock(1) 4.3 Certificate of Designations of 6% Convertible Series B Preferred Stock(4) 4.4 Certificate of Designations of 6% Convertible Series C Preferred Stock(1) 4.5 Indenture dated as of April 16, 1997 among Sun World as issuer, Sun World and certain subsidiaries of Sun World as guarantors, and IBJ Whitehall Bank & Trust Company as trustee, for the benefit of holders of 11-1/4% First Mortgage Notes due 2004 (including as Exhibit A to the Indenture, the form of the Global Note and the form of each Guarantee)(7) 4.6 Form of Amendment to Indenture dated as of October 9, 1997(10) 4.7 Form of Amendment to Indenture dated as of January 23, 1998(11) 10.1 The Company's 1996 Stock Option Plan(5) 10.2 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Timothy J. Shaheen(6) 10.3 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Stanley E. Speer(6) 10.4 Form of Sun World Executive Officer Employment Agreement(8) 10.5 Credit Agreement between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(11) 10.6 Revolving Credit Note between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(11) 10.7 Employment Agreement between the Company and Keith Brackpool dated February 1, 1998(11) 10.8 Principles for an Agreement between the Metropolitan Water District of Southern California and the Company dated August 14, 1998(12) 10.9 Amendment to the Company's 1996 Stock Option Plan(13) 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants (included in Part IV of the Form 10-K) 27.1 Financial Data Schedule------------------------- Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (1) Previously filed as Exhibit to the Company's Report on Form 8-K dated September 13, 1996 (2) Previously filed as Exhibit to the Company's Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16, 1994 (3) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1996 (4) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (5) Previously filed as Exhibit A to the Company's Proxy Statement relating to the Annual Meeting of Stockholders held on November 8, 1996 (6) Previously filed as Exhibit to the Company's Transition Report on Form 10-K for the nine months ended December 31, 1996 (7) Previously filed as Exhibit to Amendment No. 1 to the Company's Form S-1 Registration Statement No. 333-19109 (8) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended March 31, 1997 (9) Previously filed as Exhibit to Sun World's Form S-4 Registration Statement No. 333-31103 (10) Previously filed as Exhibit to Amendment No. 2 to Sun World's Form S-4 Registration Statement No. 333-31103 (11) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (12) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (13) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended June 30, 1999 (b) Reports on Form 8-K Not applicable. SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereto duly authorized.CADIZ INC.By: /s/ Keith Brackpool By: /s/ Stanley E. Speer -------------------------------- ---------------------------- Keith Brackpool, Stanley E. Speer, Chief Executive Officer and Director Chief Financial Officer and Secretary Date: March 28, 2000 Date: March 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed by the following persons in the capacities and onthe dates indicated. Name and Position DateSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------------------ -----/s/ Dwight W. Makins March 28, 2000----------------------------------------Dwight Makins, Chairman of the Boardand Director/s/ Keith Brackpool March 28, 2000-----------------------------------------Keith Brackpool, Chief Executive Officerand Director (Principal Executive Officer)/s/ Stanley E. Speer March 28, 2000---------------------------------------Stanley E. Speer, Chief Financial Officerand Secretary (Principal Financial andAccounting Officer)/s/ Murray H. Hutchison March 28, 2000----------------------------------------Murray H. Hutchison, Director/s/ Mitt Parker March 28, 2000----------------------------------------Mitt Parker, Director/s/ Timothy J. Shaheen March 28, 2000---------------------------------------Timothy J. Shaheen, Director/s/ Anthony L. Coelho March 28, 2000---------------------------------------Anthony L. Coelho, Director CADIZ INC. INDEX TO FINANCIAL STATEMENTS PageFINANCIAL STATEMENTS---------------------Report of Independent Accountants. . . . . . . . . . . . . . . . . . . .32Consolidated Statement of Operations for the three years ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .33Consolidated Balance Sheet as of December 31, 1999 and 1998. . . . . . .34Consolidated Statement of Cash Flows for the three years ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .35 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .36 Notes to the Consolidated Financial Statements. . . . . . . . . . . . . 38 FINANCIAL STATEMENT SCHEDULES-----------------------------Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Schedule I - Condensed Financial Information of Registrant for the three years ended December 31, 1999. . . . . . . . . . . . . .53 Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 1999. . . . . . . . . . . . . . . . . .56 (Schedules other than those listed above have been omitted since they areeither not required, inapplicable, or the required information is includedon the financial statements or notes thereto.) REPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholders of Cadiz Inc. In our opinion, the consolidated financial statements listedin the accompanying index present fairly, in all materialrespects, the financial position of Cadiz Inc. and itssubsidiaries at December 31, 1999 and 1998, and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 1999 in conformity withaccounting principles generally accepted in the United States.In addition, in our opinion, the financial statement scheduleslisted in the accompanying index present fairly, in all materialrespects, the information set forth therein when read inconjunction with the related consolidated financial statements.These financial statements and financial statement schedules arethe responsibility of the Company's management; ourresponsibility is to express an opinion on these financialstatements and financial statement schedules based on our audits.We conducted our audits of these statements in accordance withauditing standards generally accepted in the United States, whichrequire that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles usedand significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that ouraudits provide a reasonable basis for the opinion expressedabove./s/ PricewaterhouseCoopers---------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 15, 2000 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31,(In thousands except per share data) 1999 1998 1997 ---- ---- ----Revenues $ 114,901 $ 95,845 $ 98,769Income from partnership 328 10,699 1,388 --------- -------- -------- Total revenues 115,229 106,544 100,157 --------- -------- --------Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Costs and expenses: Cost of sales 83,821 74,742 76,566 General and administrative 12,363 11,736 11,873 Special litigation 937 1,308 683 Litigation benefit - - (3,780) Depreciation and amortization 8,891 8,688 7,745 --------- -------- -------- Total costs and expenses 106,012 96,474 93,087 --------- -------- --------Operating profit 9,217 10,070 7,070Interest expense, net 17,811 17,540 15,608 --------- -------- --------Net loss (8,594) (7,470) (8,538)Less: Preferred stock dividends - - (1,213) --------- -------- --------Net loss applicable to common stock $ (8,594) $ (7,470) $ (9,751) ========= ========= =========Net loss per common share $ (.25) $ (.23) $ (.33) ========= ========= =========Weighted average shares outstanding 34,678 33,173 29,485 ========= ========= =========See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED BALANCE SHEET December 31,($ in thousands) 1999 1998 ---- ----ASSETS Current assets: Cash and cash equivalents $ 4,537 $ 13,635 Accounts receivable, net 8,436 6,295 Inventories 18,423 15,019 Prepaid expenses and other 917 992 ------- ------- Total current assets 32,313 35,941Investment in partnership 1,497 1,169Property, plant, equipment and water programs, net 169,009 166,022Other assets 11,283 11,227 -------- -------- $ 214,102 $ 214,359 ========= ==========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 8,110 $ 8,753 Accrued liabilities 7,686 6,846 Long-term debt, current portion 725 613 ------- -------Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total current liabilities 16,521 16,212Long-term debt 142,089 142,317Deferred income taxes 5,447 5,447Other liabilities 375 673Commitments and contingenciesStockholders' equity: Common stock - $.01 par value; 45,000,000 shares authorized; shares issued and outstanding 35,166,661 at December 31, 1999 and 33,592,261 at December 31, 1998 352 336Additional paid-in capital 136,200 127,662Accumulated deficit (86,882) (78,288) ------- ------- Total stockholders' equity 49,670 49,710 ------- ------- $ 214,102 $ 214,359 ========= =========See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, -------------------------($ in thousands) 1999 1998 1997 ---- ---- ----Cash flows from operating activities: Net loss $ (8,594) $ (7,470) $ (8,538) Adjustments to reconcile net loss to net cash (used for) provided by operating activities: Depreciation and amortization 11,060 10,601 9,227 Litigation benefit - - (3,780) Issuance of stock for services 28 374 470 Interest converted to principal - - 315 (Gain) loss on disposal of assets (104) (207) 99 Share of partnership operations (328) (10,699) (1,388) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (2,141) (414) 1,652 (Increase) decrease in inventories (3,318) (1,559) 570 Decrease in prepaid expenses and other 75 307 64 (Decrease) increase in accounts payable (643) 236 672 Increase in accrued liabilities 1,668 916 1,332 Decrease in other current liabilities - - (591) (Decrease) increase in other liabilities (298) 18 54 ------- ------- -------Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net cash (used for) provided by operating activities (2,595) (7,897) 158 -------- ------- -------Cash flows from investing activities: Additions to property, plant and equipment (4,835) (7,308) (2,114) Additions to water programs (3,177) (856) (400) Additions to developing crops (3,531) (3,396) (4,725) Proceeds from disposal of property, plant and equipment 233 388 2,817 Partnership distributions - 15,859 1,165 (Increase) decrease in other assets (1,311) (2,020) 358 ------- ------- ------- Net cash (used for) provided by investing activities (12,621) 2,667 (2,899) ------- ------- -------Cash flows from financing activities: Net proceeds from issuance of stock 6,803 2,154 1,690 Proceeds from issuance of long-term debt - 12,000 120,089 Principal payments on long-term debt (685) (587) (141,248) Debt issuance costs - - (5,799) ------- ------- ------- Net cash provided by (used for) financing activities 6,118 13,567 (25,268) ------- ------- -------Net (decrease) increase in cash and cash equivalents (9,098) 8,337 (28,009)Cash and cash equivalents, beginning of period 13,635 5,298 33,307 ------- ------- -------Cash and cash equivalents, end of period $ 4,537 $ 13,635 $ 5,298 ========= ========= =========See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYFor the Years Ended December 31, 1999, 1998 and 1997($ in thousands) Total Additional Stock- Preferred Stock Common Stock Paid-in Accumulated holders' Shares Amount Shares Amount Capital Deficit Equity ------ ------- ------ ------ ------- --------- --------Balance as of December 31, 1996 340 $ - 23,445,868 $ 234 $ 88,574 $ (61,067) $ 27,741Conversion of redeemable preferred stock to common stock - - 7,314,917 73 27,358 - 27,431Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exercise of stock options and warrants - - 588,500 7 1,358 - 1,365Common stock issued to satisfy Sun World purchase liability - - 65,000 1 324 - 325Preferred dividends paid with common stock - - 361,251 3 1,714 - 1,717Issuance of warrants to a lender - - - - 1,083 - 1,083Stock issued for services - - 75,000 1 329 - 330Issuance of stock for refinancing - - 30,000 - 140 - 140Conversion of preferred stock to common stock (340) - 766,125 7 (7) - -Accrued dividends on preferred stock - - - - - (1,213) (1,213)Net loss - - - - - (8,538) (8,538) ---- ----- ---------- ------ -------- --------- --------Balance as of December 31, 1997 - $ - 32,646,661 $ 326 $120,873 $ (70,818) $ 50,381 ---- ----- ---------- ------ -------- --------- -------- See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued) For the Years Ended December 31, 1999, 1998 and 1997($ In thousands) Total Additional Stock- Preferred Stock Common Stock Paid-in Accumulated holders' Shares Amount Shares Amount Capital Deficit Equity ------ ------- ------ ------ ------- --------- --------Balance as of December 31, 1997 - $ - 32,646,661 $ 326 $120,873 $ (70,818) $ 50,381Exercise of stock options - - 515,600 6 2,148 - 2,154Issuance of Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. warrants to lender - - - - 1,643 - 1,643Stock issued for services - - 55,000 - 374 - 374Acquisition of hydrological research company - - 375,000 4 2,624 - 2,628Net loss - - - - - (7,470) (7,470) ---- ----- ---------- ------ -------- --------- --------Balance as of December 31, 1998 - - 33,592,261 336 127,662 (78,288) 49,710 ---- ----- ---------- ------ -------- --------- --------Exercise of stock options - - 1,513,150 15 6,788 - 6,803Issuance of warrants to lender - - - - 1,335 - 1,335Stock issued for services - - 61,250 1 415 - 416Net loss - - - - - (8,594) (8,594) ---- ----- ---------- ------ -------- --------- --------Balance as of December 31, 1999 - $ - 35,166,661 $ 352 $136,200 $ (86,882) $ 49,670 ==== ===== ========== ====== ======== ========= ========See accompanying notes to the consolidated financial statements. CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 - DESCRIPTION OF BUSINESS-------------------------------- The Company currently has agricultural operations throughits wholly-owned subsidiary, Sun World International, Inc. andits subsidiaries collectively referred to as "Sun World" and isdeveloping the water resource segment of its business. Theprimary business of the Company is to acquire and develop waterand agricultural resources. The Company has created anintegrated and complementary portfolio of assets encompassingundeveloped land with high-quality groundwater resources and/orstorage potential, prime agricultural properties locatedthroughout central and southern California with secure andreliable water rights, and other contractual water rights.Management believes that, with both the increasing scarcity ofwater supplies in California and an increasing population, theCompany's access to water will provide it with a competitiveadvantage both as a major agricultural concern and as a supplierof water, which will lead to continued appreciation in the valueof the Company's portfolio. Sun World is a large vertically integrated agriculturalcompany and farms more than 21,000 acres, primarily located intwo major growing areas of California: the San Joaquin Valley andthe Coachella Valley. Fresh produce, including table grapes,Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. stonefruit, citrus, peppers and watermelons, is marketed andshipped to food wholesalers and retailers throughout the UnitedStates and to more than 25 foreign countries. Sun World ownsthree cold storage and/or packing facilities in California, ofwhich two are operated and one is leased to a third party. Sun World provides the Company with valuable water rightsthroughout central and southern California. The Company'slandholdings, which now total approximately 56,900 acres, arelocated adjacent to the Colorado River and the major aqueductsystems of central and southern California. The Company expectsto utilize its resources to participate in a broad variety ofwater storage and supply projects, including the storage andsupply of surplus water for public agencies that requiresupplemental sources of water for exchanges or transfers to thirdparties. In 1998, the Company and the Metropolitan Water District ofSouthern California ("Metropolitan") verified the feasibility ofand approved principles and terms for a water storage and supplyprogram at its Cadiz, California property. The Cadiz GroundwaterStorage and Dry-Year Supply Program (the "Program") will enhancesouthern California water supply reliability in two ways,providing a new dry-year water supply and much-needed storage.During wet years or periods of excess supply, Metropolitan willstore surplus Colorado River water in the aquifer systemunderlying the Company's Cadiz property. During dry years, thepreviously imported water, together with additional existinggroundwater, will be extracted and delivered, via a 35-mileconveyance pipeline, to Metropolitan's service area. The Companyand Metropolitan are currently in the final stages of theenvironmental review process. Although the development and management activities of theCompany are currently focused on agricultural operations(primarily through its wholly-owned subsidiary, Sun World) andwater resource development, the Company will continue to developand manage its land, water and agricultural resources for theirhighest and best uses.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES----------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accountsof the Company and Sun World. All material intercompany balancesand activity have been eliminated from the consolidated financialstatements.RECLASSIFICATIONS These financial statements reflect certain reclassificationsmade to the prior period balances to conform with the currentyear presentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.REVENUE RECOGNITIONSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company recognizes crop sale revenue, packing revenueand marketing commissions upon shipment to customers.RESEARCH AND DEVELOPMENT Sun World incurs costs to research and develop new varietiesof proprietary products. Research and development costs areexpensed as incurred. Such costs were approximately $1,450,000for the year ended December 31, 1999, $1,249,000 for the yearended December 31, 1998, and $809,000 for the year ended December31, 1997.NET LOSS PER COMMON SHARE Basic Earnings Per Share (EPS) is computed by dividing thenet loss, after deduction for preferred dividends either accruedor imputed, if any, by the weighted average common sharesoutstanding. Options and warrants to purchase certain shares ofthe Company's common stock, as described in Note 13, were notconsidered in the computation of diluted EPS because theirinclusion would have been antidilutive.CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cash equivalents.The Company invests its excess cash in deposits with majorinternational banks and short-term commercial paper and,therefore, bears minimal risk. Such investments are stated atcost, which approximates fair value, and are considered cashequivalents for purposes of reporting cash flows.INVENTORIES Growing crops, pepper seed, and materials and supplies arestated at the lower of cost or market, on a first-in, first-out(FIFO) basis. Growing crops inventory includes direct costs andan allocation of indirect costs.INVESTMENT IN PARTNERSHIP Sun World, through a wholly-owned subsidiary, owns a 50%interest in ASC/SWB Partnership, formerly named American SunMelon(the "Partnership"). In October 1998, the Partnership soldsubstantially all of its assets to a third party for $35 millionin cash. In conjunction with the sale, Sun World received aninitial distribution of $15.2 million from the Partnership. ThePartnership was engaged in proprietary development, production,and marketing of seedless watermelon seed. Sun World accountsfor its investment in the Partnership using the equity method.PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs are stated atcost. The Company capitalizes direct and certain indirect costs ofplanting and developing orchards and vineyards during thedevelopment period, which varies by crop and generally rangesfrom three to seven years. Depreciation commences in the yearcommercial production is achieved. Permanent land development costs, such as acquisition costs,clearing, initial leveling and other costs required to bring theland into a suitable condition for general agricultural use, arecapitalized and not depreciated since these costs have anindeterminate useful life.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Depreciation is provided using the straight-line method overthe estimated useful lives of the assets, generally ten to forty-five years for land improvements and buildings, three to twenty-five years for machinery and equipment, and five to thirty yearsfor permanent crops. Water rights and water storage and supply programs arestated at cost. All costs directly attributable to thedevelopment of such programs are being capitalized by theCompany. These costs, which are expected to be recovered throughfuture revenues, consist of direct labor, drilling costs,consulting fees for various engineering, hydrological,environmental and feasibility studies, and other professional andlegal fees.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets,including intangibles, for potential impairment. Whencircumstances indicate that the carrying amount of the asset maynot be recoverable, as demonstrated by estimated future cashflows, an impairment loss would be recorded based on estimatedfair value.OTHER ASSETS As a result of a merger in May 1988 between two companies,which eventually became known as Cadiz Inc., an excess ofpurchase price over net assets acquired in the amount of$7,006,000 was recorded. This amount is being amortized on astraight-line basis over thirty years. Accumulated amortizationwas $2,726,000 and $2,493,000 at December 31, 1999 and December31, 1998, respectively. Capitalized loan fees represent costs incurred to obtaindebt financing. Such costs are amortized over the life of therelated loan. At December 31, 1999, the majority of capitalizedloan fees relate to the issuance of the First Mortgage Notesdescribed in Note 9. Trademark development costs represent legal costs incurredto obtain and defend patents and trademarks related to theCompany's proprietary products throughout the world. Such costsare capitalized and amortized over their estimated useful life,which range from 10 to 20 years.INCOME TAXES Income taxes are provided for using an asset and liabilityapproach which requires the recognition of deferred tax assetsand liabilities for the expected future tax consequences oftemporary differences between the financial statement and taxbases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is uncertainthat some portion or all of the deferred tax assets will berealized.SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December 31,1999, 1998 and 1997 was $15,988,000, $15,348,000, and $12,452,000, respectively.NOTE 3 - ACCOUNTS RECEIVABLE----------------------------- Accounts receivable consist of the following (dollars in thousands):Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 1999 1998 ---- ---- Trade receivables $ 4,742 $ 4,092 Due from unaffiliated growers 582 231 Other 3,336 2,257 ------- ------- 8,660 6,580 Less allowance for doubtful accounts (224) (285) ------- ------- $ 8,436 $ 6,295 ======= ======= Substantially all domestic receivables are from largenational and regional supermarket chain stores and producebrokers and are unsecured. Amounts due from unaffiliated growersrepresent receivables for harvest advances and for services(harvest, haul and pack) provided on behalf of growers underagreement with Sun World and are recovered from proceeds ofproduct sales. Other receivables primarily include wine grapeand raisin sales, proceeds due from third party marketers andother miscellaneous receivables. Revenues attributable to one national retailer totaled $14.4million in 1999, $11.9 million 1998, and $13.6 million in 1997.Export sales accounted for approximately 10.3%, 8.5% and 11.4% ofthe Company's revenues for the years ended December 31, 1999,1998 and 1997, respectively.NOTE 4 - INVENTORIES-------------------- Inventories consist of the following (dollars in thousands): December 31, 1999 1998 ---- ---- Growing crops $ 14,297 $ 11,208 Pepper seed 1,028 1,344 Harvested product 98 360 Materials and supplies 3,000 2,107 ------- ------- $ 18,423 $ 15,019 ======== ========NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS------------------------------------------------------ Property, plant, equipment and water programs consist of thefollowing (dollars in thousands): December 31, 1999 1998 ---- ---- Land $ 69,377 $ 66,536 Permanent crops 66,546 67,286 Developing crops 8,862 5,192 Water programs 11,814 8,482 Buildings 21,832 21,397 Machinery and equipment 19,623 18,186 ------- -------Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 198,054 187,079 Less accumulated depreciation (29,045) (21,057) ------- ------- $ 169,009 $ 166,022 ======= ======= Depreciation expense during the years ended December 31, 1999,1998 and 1997 was $8,460,000, $8,256,000 and $7,430,000, respectively.NOTE 6 - OTHER ASSETS--------------------- Other assets consist of the following (dollars in thousands): December 31, 1999 1998 ---- ---- Excess of purchase price over asset acquired, net $ 4,280 $ 4,514 Capitalized loan fees, net 3,331 4,159 Other receivables 1,849 1,498 Capitalized trademark development, net 1,323 989 Other 500 67 ------- ------- $ 11,283 $ 11,227 ======== ========NOTE 7 - ACCRUED LIABILITIES---------------------------- Accrued liabilities consist of the following (dollars in thousands): December 31, 1999 1998 ---- ---- Interest $ 3,129 $ 3,548 Payroll and benefits 3,031 2,049 Other 1,526 1,249 ------- -------- $ 7,686 $ 6,846 ======= =======NOTE 8 - REVOLVING CREDIT FACILITY---------------------------------- In February 2000, Sun World obtained a one year renewal of its$30 million Revolving Credit Facility. The Revolving CreditFacility is secured by eligible accounts receivable andinventory, and is guaranteed by the Company. Amounts borrowedunder the facility will accrue interest at either prime plus 1.0%or LIBOR plus 2.50% at the Company's election. No amounts wereoutstanding under the Revolving Credit Facility at December 31,1999 and 1998.NOTE 9 - LONG-TERM DEBT----------------------- Management estimates that the fair value of the Company'slong-term debt approximates the carrying value for all debtinstruments except for the Series B First Mortgage Notes ("FirstMortgage Notes"). The fair value of the First Mortgage Notes isestimated to be approximately $117.9 million based on quotedSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. market prices as of December 31, 1999. At December 31, 1999 andDecember 31, 1998, the carrying amount of the Company'soutstanding debt is summarized as follows (dollars in thousands): December 31, 1999 1998 ---- ---- Cadiz obligations: Senior term bank loan, interest payable semi-annually, variable interest rate based upon LIBOR plus 2% (8.16% at December 31, 1999) and LIBOR plus 4% (9.97% at December 31, 1998), due January 31, 2001. $ 10,345 $ 9,752 $15 million revolving line of credit, interest payable semi-annually, variable interest rate based upon LIBOR plus 2% (8.16% at December 31, 1999), due January 31, 2001. 15,000 15,000 Other 21 30 Debt discount (1,685) (1,628) ------- ------- 23,681 23,154 ------- ------- Sun World obligations: Series B First Mortgage Notes, interest payable semi-annually with principal due in April 2004, interest at 11.25% 115,000 115,000 Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (8.75% at December 31, 1999 and 7.75% at December 31, 1998) 1,714 2,000 Note payable to insurance company, quarterly installments of $93 (including interest), due September 13, 2006, interest at 7.75% 1,896 2,110 Note payable to finance company, monthly installments of $18 (including interest) due July 1, 2002, interest at 7.50% 492 666 Other 31 - ------- ------- 119,133 119,776 ------- ------- 142,814 142,930 Less current portion (725) (613) ------- ------- $ 142,089 $ 142,317 ========= ========= Annual maturities of long-term debt outstanding, excludingSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $1,685 representing the unamortized portion of warrants, onDecember 31, 1999 are as follows: 2000 - $725; 2001 - $26,083;2002 - $660; 2003 - $578; 2004 - $115,599 and thereafter - $854.CADIZ OBLIGATIONS The senior term bank loan is secured by substantially all ofthe Company's non-Sun World related property. During 1999, theCompany entered into two extensions of the loan which extendedthe maturity date of the obligation to January 31, 2001, andreduced the interest rate from LIBOR plus 400 basis points toLIBOR plus 200 basis points, payable semi-annually. Inconnection with obtaining the extensions, the Company issuedcertain warrants to purchase shares of the Company's common stockand also repriced certain warrants previously issued. The fairvalue of the warrants was recorded as a debt discount and isbeing amortized over the remaining term of the loan. In November 1997, the Company entered into a three year $15million revolving credit facility. In December 1999, the Companyextended the maturity date of the obligation to January 31, 2001.With the extension, the interest rate was changed from 8% toLIBOR plus 200 basis points. The facility is secured by a secondlien on substantially all of the non-Sun World assets of theCompany. The Company had $15 million outstanding under thefacility at December 31, 1999.SUN WORLD OBLIGATIONS In April 1997, Sun World issued $115 million of Series AFirst Mortgage Notes through a private placement. The notes havesubsequently been exchanged for Series B First Mortgage Notes,which are registered under the Securities Act of 1933 and arepublicly traded. The First Mortgage Notes are secured by a firstlien (subject to certain permitted liens) on substantially all ofthe assets of Sun World and its subsidiaries other than growingcrops, crop inventories and accounts receivable and proceedsthereof, which secure the Revolving Credit Facility. The FirstMortgage Notes are also guaranteed by certain subsidiaries andthe Company pledged all of the stock of Sun World. The FirstMortgage Notes mature April 15, 2004, but are redeemable at theoption of Sun World, in whole or in part, at any time on or afterApril 15, 2001. The First Mortgage Notes include covenants whichrestrict the Company's ability to receive distributions from SunWorld.NOTE 10 - INCOME TAXES----------------------- Deferred taxes are recorded based upon differences betweenthe financial statement and tax bases of assets and liabilitiesand available carryforwards. Temporary differences andcarryforwards which gave rise to a significant portion ofdeferred tax assets and liabilities as of December 31, 1999 and1998 are as follows (in thousands): December 31, 1999 1998 ---- ---- Deferred tax liabilities: Fixed asset basis difference $ 7,515 $ 5,618 Other 77 - ------- ------- Total deferred tax liabilities 7,592 5,618 ------- ------- Deferred tax assets: Net operating losses 31,421 25,813Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reserve for notes receivable 1,178 1,178 Fixed asset basis difference 6,300 6,300 State taxes 1,884 1,649 Other - 550 Total deferred tax assets 40,783 35,490 Valuation allowance for deferred tax assets (38,638) (35,319) ------- ------- Net deferred tax assets 2,145 171 ------- ------- Net deferred tax liability $ 5,447 $ 5,447 ======= ======= As of December 31, 1999, the Company had net operating loss(NOL) carryforwards of approximately $88.5 million for federalincome tax purposes. Such carryforwards expire in varyingamounts through the year 2019. At December 31, 1999, the Companyhas state NOL carryforwards of $15.0 million. These NOLcarryforwards expire in varying amounts through the year 2004. A reconciliation of the income tax benefit to the statutoryfederal income tax rate is as follows (dollars in thousands): Year Ended December 31, --------------------------- 1999 1998 1997 ---- ---- ---- Expected federal income tax benefit at 34% $ (2,922) $ (2,540) $ (2,903) Loss with no tax benefit provided 2,718 2,414 2,981 State income tax - 451 - Amortization 79 79 79 Utilization of net operating losses - (601) - Other non-deductible expenses 125 197 (157) ------- ------- ------- Income tax benefit $ - $ - $ - ======== ======== ========NOTE 11 - EMPLOYEE BENEFIT PLANS--------------------------------- The Company has a 401(k) Plan for its salaried employees.Employees must work 1,000 hours and have completed one year ofservice to be eligible to participate in this plan. Sun Worldmatches 75% of the first four percent deferred by an employee upto $1,600 per year. In addition, Sun World maintains a definedcontribution pension plan covering substantially all of itsemployees who (i) are not covered by a collective bargainingagreement, (ii) have at least one year of service and (iii) haveworked at least 1,000 hours. Contributions are 2% of eachcovered employee's salary. For those hourly employees coveredunder a collective bargaining agreement, contributions are madeto a multi-employer pension plan in accordance with negotiatedlabor contracts and are generally based on the number of hoursworked.NOTE 12 - PREFERRED AND COMMON STOCK----------------------------------- The Company has an authorized class of 100,000 shares ofpreferred stock. All preferred stock issued was converted tocommon stock as of December 31, 1997. During 1997, the CompanySource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. paid $1,717,000 of preferred stock dividends with common stock.NOTE 13 - STOCK-BASED COMPENSATION PLANS AND WARRANTS------------------------------------------------------STOCK OPTIONS AND WARRANTS The Company issues options pursuant to its 1996 Stock OptionPlan (the "1996 Plan") and the 1998 Non-Qualified Stock OptionPlan (the "1998 Plan") approved by the Board of Directors inFebruary 1998. The plans provide for the granting of up to4,000,000 shares. At December 31, 1999, the Company has 626,000options remaining that can be granted under the plans. Alloptions are granted at a price approximating fair market value atthe date of grant, have vesting periods ranging from issuancedate to five years, have maximum terms ranging from five to sevenyears and are issued to directors, officers, consultants andemployees of the Company. During the year ended December 31,1999, the Company granted options to purchase 800,000 shares ofthe Company's common stock at a weighted average exercise priceof $7.58 per share. Compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company's stockat the date of the grant over the amount an employee must pay toacquire the stock. Had compensation cost for these plans beendetermined using fair value, as explained below, the Company'snet loss and net loss per common share would have increased tothe following pro forma amounts (dollars in thousands): Year Ended December 31, --------------------------- 1999 1998 1997 ---- ---- ---- Net loss applicable to common stock: As reported $ (8,594) $ (7,470) $ (9,751) Pro forma $ (12,134) $ (8,833) $ (11,416) Net loss per common share: As reported $ (.25) $ (.23) $ (.33) Pro forma $ (.35) $ (.27) $ (.39) The fair value of each option granted during the periodsreported was estimated on the date of grant using the Black-Scholes option pricing model based on the weighted-averageassumptions of: risk-free interest rate of 6.67% for 1999, 4.87%for 1998 and 5.43% for 1997; expected volatility of 46.9% for1999, 61.6% for 1998 and 44.4% for 1997; expected life of 5 yearsfor 1999 and 1998, and 4.8 years for 1997; and an expecteddividend yield of zero for all three years. The following table summarizes stock option activity for theperiods noted. All options listed below were issued to officers,directors, employees and consultants. Weighted- Average Exercise Amount Price ----------- ------- Outstanding at December 31, 1996 3,866,000 $ 4.44 Granted 527,500 $ 5.61 Expired or canceled (120,000) $ 4.80 Exercised (348,500) $ 4.17 -------- Outstanding at December 31, 1997 3,925,000 $ 4.61 Granted 525,000 $ 9.12Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Expired or canceled (42,500) $ 6.44 Exercised (515,600) $ 4.18 -------- Outstanding at December 31, 1998 3,891,900 $ 5.26 Granted 800,000 $ 7.58 Expired or canceled (66,000) $ 7.20 Exercised (1,513,150) $ 4.50 --------- Outstanding at December 31, 1999 3,112,750(a) $ 6.21 ========= Options exercisable at December 31, 1997 2,297,500 $ 4.40 ========= Options exercisable at December 31, 1998 2,472,900 $ 4.50 ======== Options exercisable at December 31, 1999 2,306,500 $ 5.64 ======== Weighted-average remaining contractual life of options outstanding at December 31, 1999 2.68 ========= (a) Exercise prices vary from $4.50 to $9.375 and expiration dates vary from September 2001 to November 2004. The weighted-average fair value of options granted duringthe years 1999, 1998 and 1997 were $3.71, $3.60 and $2.55, respectively. During the years ended December 31, 1999, 1998 and 1997, theCompany issued 250,000, 225,000, and 275,000 warrants with weighted-average exercise prices of $6.50, $7.00 and $6.45, respectively. During the year ended December 31, 1997, 240,000 warrants with a weighted-average exercise price of $0.05 were exercised. No warrants expired or were canceled during any of the three periods discussed. At December 31, 1999 there were 750,000 warrants outstanding at a weighted-average exercise price of $6.59 per share, which expirethrough 2004. See Note 9 for further discussion of these warrants.RESTRICTED STOCK AWARD Following the acquisition of Sun World in 1996, theCompany's Chief Executive Officer was awarded a stock bonus of125,000 shares of restricted common stock at no cost. TheCompany issued 25,000, 25,000 and 75,000 of these shares duringthe years ended December 31, 1999, 1998 and 1997, respectively.Compensation expense was recognized as earned over the period ofservice.NOTE 14 - CONTINGENCIES----------------------- In December 1995, the Company filed an action relative to theproposed construction and operation of a landfill (the "Rail-Cycle Project") which was to be located adjacent to the Company'sCadiz property with the Superior Court in San Bernardino County,California. The action challenges the various decisions by theCounty of San Bernardino relative to the proposed Rail-CycleProject and seeks compensatory damages. On or about September30, 1998, the Court granted defendants' motions for summaryjudgement, finding that the Company's procedural due processclaim is not ripe due to the fact that, as the Rail-Cycle ProjectSource: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. cannot proceed without voter approval of a business license tax,there is no actual concrete injury to the Company at this pointin time. The Company has appealed this decision. Also pending are suits filed by the Company in the UnitedStates District Court, Central District of California (the"Federal Court Action") and in Los Angeles Superior Court (WestDivision) ("the State Court Action") against Waste Management,Inc. ("WMI"), certain key executives and consultants of WMI, andcertain other parties in interest as to the Rail-Cycle Project,which suits assert claims arising from activities of defendantsadverse to the Company in connection with the Rail-Cycle Project.In the Federal Court Action, appeals are currently pendingconcerning the dismissal by the trial court of those of theCompany's claims which are not being pursued by the Company inthe State Court Action. These civil actions are based in partupon evidence made available to the Company on account of apending criminal investigation into WMI's activities concerningthe Rail-Cycle Project, which has resulted in criminalindictments against WMI and others. In the State Court Action,the Company filed its Second Amended Complaint in February 2000.The Company intends to continue to vigorously prosecute itsclaims against WMI. Prior to the acquisition of Sun World, the Internal RevenueService (IRS) had filed claims against Sun World and certain ofits subsidiaries (collectively "the Sun World Claimants"), fortaxes refunded for workers that the IRS claims were employees.The Sun World Claimants contend that the workers are excludedfrom the definition of employment under the Internal RevenueCode. On January 21, 1998, the District Court ruled in favor ofone of the Sun World Claimants. The IRS has appealed thisdecision. Management believes that the likelihood of anunfavorable future outcome with regard to this matter is remote.Accordingly, the Company released $3,780,000 of reserves relatedto this matter at December 31, 1997 which are reported on theConsolidated Statement of Operations as Litigation Benefit. In the normal course of its agricultural operations, theCompany handles, stores, transports and dispenses productsidentified as hazardous materials. Regulatory agenciesperiodically conduct inspections and, currently, there are nopending claims with respect to hazardous materials. The Company is involved in other legal and administrativeproceedings and claims. In the opinion of management, theultimate outcome of each proceeding or all such proceedingscombined will not have a material adverse impact on the Company'sfinancial statements.NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)-----------------------------------------------------(In thousands except per share data) Quarter Ended -------------------------------------------- March 31, June 30, September 30, December 31, 1999 1999 1999 1999 ----- ----- ----- -----Revenues $ 6,560 $ 26,193 $ 60,644 $ 21,832Gross profit 911 7,628 15,976 6,893Net income (loss) (7,421) (1,908) 2,993 (2,258)Net income (loss) per common share $ (.22) $ (.06) $ .09 $ (.06)Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Quarter Ended -------------------------------------------- March 31, June 30, September 30, December 31, 1998 1998 1998 1998 ----- ----- ----- -----Revenues $ 5,484 $ 22,619 $ 45,596 $ 32,845Gross profit 471 5,664 8,008 17,659Net income (loss) (7,190) (3,065) (4,894) 7,679Net income (loss) per common share $ (.22) $ (.09) $ (.15) $ .23 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT December 31,Balance Sheet ($ in thousands): 1999 1998 ---- -----ASSETS Current assets: Cash and cash equivalents $ 4,145 $ 7,493 Accounts receivable, net 16 77 Due from subsidiary - 71 Prepaid expenses and other 386 253 -------- ------- Total current assets 4,547 7,894Investment in subsidiary 30,167 30,738Property, plant, equipment and water programs, net 36,710 32,174Other assets 4,372 4,585 -------- -------- $ 75,796 $ 75,391 ========= =========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 705 $ 701 Accrued liabilities 1,536 1,826 Due to subsidiary 203 - Long-term debt, current portion 21 9 ------- ------- Total current liabilities 2,465 2,536Long-term debt 23,661 23,145Commitments and contingenciesStockholders' equity: Common stock - $.01 par value; 45,000,000 shares authorized; shares issued and outstanding 35,166,661 at December 31, 1999 and 33,592,261 at December 31, 1998 352 336Additional paid-in capital 136,200 127,662Accumulated deficit (86,882) (78,288) -------- -------- Total stockholders' equity 49,670 49,710Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------- ------- $ 75,796 $ 75,391 ========= ========= CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Statement of Operations ($ in thousands except Year Ended December 31, per share data) 1999 1998 1997 ---- ---- ----Revenues $1,829 $2,003 $ 1,968 -------- -------- -------Costs and expenses: Cost of sales 132 144 270 General and administrative 4,672 4,631 4,042 Special litigation 937 1,308 683 Depreciation and amortization 1,179 1,182 994 -------- ------- -------- Total costs and expenses 6,920 7,265 5,989 -------- -------- -------Operating loss (5,091) (5,262) (4,021)Profit (loss) from subsidiaries (571) 195 (2,817)Interest expense, net 2,932 2,403 1,700 ------- ------- -------Net loss (8,594) (7,470) (8,538)Less: Preferred stock dividends - - (1,213) -------- -------- -------Net loss applicable to common stock $(8,594) $(7,470) $(9,751) ======= ======== =======Net loss per common share $ (.25) $ (.23) $ (.33) ======== ========= =======Weighted-average shares outstanding 34,678 33,173 29,485 ======== ======= ======= CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Year Ended December 31,Statement of Cash Flows ----------------------- ($ in thousands) 1999 1998 1997 ---- ---- ----Cash flows from operating activities: Net loss $ (8,594) $ (7,470) $ (8,538) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,498 2,230 1,462 Issuance of stock for services 28 374 470 Loss (profit) from subsidiaries 571 (195) 2,817 Interest converted to principal - - 315 (Gain) loss on disposal of assets 6 (17) 138 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 61 (59) 192 Decrease in inventories - - 7Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Decrease (increase) in due from subsidiary 274 (107) 131 Increase in prepaid expenses and other (133) (123) (56) Increase (decrease) in accounts payable 4 (9) (667) Increase in accrued liabilities 539 1,007 506 Decrease in other liabilities - (47) (1,006) -------- ------- ------- Net cash used for operating activities (4,746) (4,416) (4,229) -------- -------- -------Cash flows from investing activities: Additions to property, plant and equipment (3,645) (2,910) (638) Additions to water programs (3,177) (856) (466) Proceeds from disposal of property, plant and equipment 1,490 27 33 (Increase) decrease in other assets (64) (71) 153 -------- -------- ------- Net cash used for investing activities (5,396) (3,810) (918) -------- -------- -------Cash flows from financing activities: Net proceeds from issuance of stock 6,803 2,150 1,690 Proceeds from issuance of long-term debt - 10,000 5,084 Principal payments on long-term debt (9) (21) (9,231) Debt issuance costs - - (38) Return of capital from subsidiary - - 9,100 -------- -------- ------- Net cash provided by financing activities 6,794 12,129 6,605 -------- -------- -------Net (decrease) increase in cash and cash equivalents (3,348) 3,903 1,458Cash and cash equivalents, beginning of period 7,493 3,590 2,132 ------- ------- -------Cash and cash equivalents, end of period $ 4,145 $ 7,493 $ 3,590 ======== ======== ======== CADIZ INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTSFor the years ended December 31, 1999, 1998 and 1997 ($ in thousands) Additions charged to -------------------- Balance at Costs BalanceYear ended Beginning and Other at EndDecember 31, 1999 of Period Expenses Accounts Deductions of period------------------ ---------- -------- -------- --------- --------Allowance for doubtful accounts $ 285 $ - $ - $ 61 $ 224 ======== ======== ======= ======== ========Tax valuation allowance $ 35,319 $ - $ 3,319 $ - $ 38,638 ======== ======== ======== ======== ========Year endedDecember 31, 1998-----------------Allowance for doubtful accounts $ 287 $ 130 $ - $ 132 $ 285Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ======== ======= ======== ======== =======Tax valuation allowance $ 25,321 $ - $ 9,998 $ - $ 35,319 ======== ====== ======== ======== ========Year endedDecember 31, 1997------------------Allowance for doubtful accounts $ 480 $ - $ - $ 193 $ 287 ======== ======= ======== ======= ========Tax valuation allowance $ 20,935 $ - $ 4,386 $ - $ 25,321 ======== ======= ======== ======= ======== CONSENT OF INDEPENDENT ACCOUNTANTSWe hereby consent to the incorporation by reference in theRegistration Statements on Form S-8 (Nos. 33-83360, 33-63065, 333-35491, 333-41367, 333-74699 and 333-81805) and on Form S-3 (No.333-53069) of Cadiz Inc. of our report dated February 15, 2000relating to the financial statements and financial statementschedules, which appears in this Form 10-K./s/ PricewaterhouseCoopers--------------------------------- PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 27, 2000Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1 ------------ CADIZ INC. SUBSIDIARIES OF THE COMPANY Rancho Cadiz Mutual Water CompanySun World International, Inc.Source: CADIZ INC, 10-K, March 29, 2000Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
Continue reading text version or see original annual report in PDF format above